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Tesla options heat up as shares slide

Tesla options heat up as shares slideTesla Motors Inc (NASDAQ:TSLA) – Shares in electric vehicle maker, Tesla Motors, Inc., are taking a hit today, down 7.8% at $28.27 as of 11:05 a.m. ET, after the company lowered its third-quarter and full-year revenue estimates and said it plans to issue more stock. Options volume on Tesla is nearly twice the stock’s average daily volume this morning, with some strategists preparing for further declines in the price of the underlying. Near-term bearish positioning in the front month is heaviest at the Oct. $26 strike where upwards of 2,100 put options changed hands against open interest of 905 contracts.

It looks like traders purchased most of these contracts for an average premium of $1.05 apiece. Put buyers stand ready to profit at expiration next month in the event that Tesla’s shares drop nearly 12% from the current price to settle below the breakeven point at $24.95. Bears also looked to the $28 strike put options expiring in October, buying around 800 contracts in the early going for an average premium of $2.01 each. The purchase of a 300-lot Oct. $29/$32 bear put spread on Monday prepared one strategist for an adverse move in the price of the underlying today. The trader appears to have purchased the spread for a net premium of $1.68 per contract yesterday afternoon, looking for a minimum 1.2% decline in the $30.70 share price at the time of the trade to the breakeven point at $30.32. Shares are currently trading well below the lower $29 striking price; maximum possible profits of $1.32 per contract are available on the strategy at October expiration as long as shares settle below $29.00. Finally, contrarian players positioning for a rebound in TSLA shares in the next four weeks picked up around 400 calls at the Oct. $29 strike for an average premium of $1.07 apiece. Call buyers stand ready to profit at expiration should the stock rally at least 6% over the current price to exceed $30.07.

The New York Times Company (NYSE:NYT) Multimedia news and information company, New York Times Co., completed its sale of The About Group to IAC/InterActiveCorp. yesterday and announced the sale of its remaining stake in this morning, sending the price of its shares up as much as 3.3% on Tuesday morning to $9.91. Traders bullish on the near-term prospects for the performance of NYT shares appear to be buying front month calls on the stock. Shares in NYT are up 80% off a 52-week low of $5.50 reached back on October 4th of last year. One or more options players prepared to benefit from continued gains in the stock price purchased around 920 in-the-money calls at the Oct. $9.0 strike for an average premium of $0.98 each in the first 10 minutes of the trading session today. Profits are available on the position should shares in NYT surpass the current 52-week high of $9.95 set earlier this month to top the average breakeven point at $9.98 by October expiration. The Oct. $10 strike call changed hands more than 1,000 times this morning, and were mostly purchased within minutes of the opening bell at an average premium of $0.30 apiece. Buyers of the $10 calls profit if the price of the underlying gains 4% to exceed $10.30 at expiration next month. The October expiry call options expire the week prior to NYT’s third-quarter earnings report on October 25th.

Lorillard Inc. (NYSE:LO) – Cigarette manufacturer, Lorillard Co., popped up on our market scanners not long after the opening bell on Tuesday due to heavier-than-usual activity in downside put options. Shares in Lorillard briefly traded in negative territory this morning, before turning positive to stand 0.20% higher on the session at $119.20 as of midday on the East Coast. Bearish options that make money if shares trade lower heading into the weekend are most active, with the Sep. 28 ’12 $115 strike put changing hands roughly 2,800 times against open interest of just 150 contracts. It looks like most of the $115 puts were purchased for an average premium of $0.41 each, thus positioning buyers to profit in the event of a near 4% decline in the share price to trade below $114.59 by expiration. Trading traffic in October expiry options suggests the price of Lorillard’s shares could drop more substantially during the next four weeks. It looks like traders purchased more than 560 of the Oct. $105 strike put this morning at a premium of $0.25 each. Put buyers stand ready to profit at expiration if LO shares drop 12% to settle below the breakeven price of $104.75.

Caitlin Duffy
Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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