Whipsawed Tesla Investors Facing More Turbulence After Earnings

(Bloomberg) -- Being a Tesla Inc. shareholder has required a strong stomach over the past year as the stock price routinely posted double-digit price swings from one month to the next. Now options investors are bracing for even more volatility in the wake of the company’s earnings report.

The electric-car maker’s shares ended 2018 with a 6.9 percent gain after a tumultuous year marked by production struggles and Chief Executive Officer Elon Musk’s erratic behavior. They have since given up those gains and were trading down about 9 percent for the month at $302 ahead of Wednesday evening’s earnings report.

Options prices imply an 11 percent post-earnings move, which could put Tesla back into the green for the year if the stock gains, as it has following the previous two reports. The shares have moved an average 8 percent after the past eight quarters, declining five times and rising three.

Of all the open interest in Tesla options, about 8.5 percent of the contracts expire this week. Among those, the ratio of bullish calls to bearish puts is about even.

Volatility is also likely to increase as Tesla gets closer to the due date on $920 million of convertible bonds on March 1. The company can avoid the payout if the share price reaches $359.87 by then. That could be an even bigger factor than earnings in options positioning as investors look for clues about a potential refinancing, said Alon Rosin, Oppenheimer’s head of institutional equity derivatives.

“While current implied volatility is elevated ahead of the report, we could see an extended period of higher volatility until the convert issue gets resolved” Rosin said.

To contact the reporter on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Steven Fromm

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