Options traders who purchased Tesla Motors Inc (NASDAQ:TSLA) calls a few weeks ago were disappointed when the stock rose significantly this week, but the price of the options didn’t move much at all. The culprit? Volatility traders.
Tesla Motors reaches new record highs
Tesla Motors Inc (NASDAQ:TSLA) reached new record highs every day last week, and while the actual stock prices gained, algorithmic options traders were knocking down the implied volatility and algorithmic sell signals indicated the move in Tesla may be over now, suggesting a retreat in the stock price over the coming months.
It was professional managed futures who first championed Tesla when the stock was trading at $50 in this CNBC interview. Managed futures had supported Tesla and the stock until it came close to its intended target, where it currently sits.
Considering both long and short term trade time horizons, the recent move into new highs in the stock was not confirmed by certain algorithmic computer signals known to be used in the managed futures industry. While each “commodity trading advisor,” as the fund managers are known, uses their own individual computer programs, all the formulas are based on common mathematical principles and correlate to various market environments. Managed futures researchers have developed proprietary methods to approximately measure when funds get in and out of markets, often a precursor of future market moves.
Low implied volatility on Tesla stocks
A report in the Wall Street Journal notes that implied volatility on Tesla Motors Inc (NASDAQ:TSLA) shares was currently hitting lows not seen since March of 2013, just before managed futures trading professionals began to publicly embrace Tesla stock.
The report noted the two most active options on traded Monday were weekly call options that would grant the holder the right to buy Tesla stock if shares rose above $265 and $270 at the end of the week.
Andrew Wilkinson, chief market analyst at Interactive Brokers in New York, was quoted in the report saying the $265 and $270 call options were likely being unloaded by traders who were unwinding earlier bets that the stock would reach those levels by Friday.
“They just don’t see the stock leaping that far that quickly,” he said.
In other words, Tesla Motors Inc (NASDAQ:TSLA) might have hit the high for the year, say managed futures observers.