Tesla (TSLA) - Volatility Divergence Forms; Risk is Elevated for the Next 4 Days

TSLA is trading $112.15, down 11.9% with IV30™ up 6.5%. The LIVEVOL® Pro Summary is below.



Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components. Tesla owns its sales and service network.

I wrote about TSLA in a three piece series in May. You can read those posts by clicking the titles, below:


5-9-2013: Tesla (TSLA) - Earnings Explosion Spectacle Hides Vol Shift -- This is a New Company -- A Paradigm Shift is Complete

<5-15-2013: b="">Tesla (TSLA) - May Skew Stays Parabolic; Vol Diff Opens... And Some Stuff You May Not Have Known...

5-29-2013: Tesla (TSLA) - This is a New Company; The Paradigm Shift Continues; Part 3 of 3.

Today the stock came up on a real-time custom scan. This one hunts for calendar spreads between the front two months. And yes, I know we are just four days from expiry, bu this is still worth a look...

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Looking to the Skew Tab (below), we can see the elevated vol in the front month (red line) relative to the second month (yellow line).



We can see two phenomena here:

(1) Jul vol is above Aug vol for all strikes.
(2) The Jul skew shape is parabolic (which is common going into expiration), so the OTM vols show an exponentially greater volatility difference between Jul and Aug.

The earnings date for TSLA is a it ambiguous. Last year they released on May 9 then Jul 25. This year they released on May 8, so Jul 24 is a reasonable guess for the next earnings report. If that's the case, we not only have a calendar vol diff, but one in which earnings vol can be owned for less than the font month (without earnings). Hmmm...

Now we can turn to the one-year Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see how TSLA's price has rocketed from an annual low of ~$45, to now trading over $110, even with the large decline today. On the vol side, check out that pop in the implied (the red line). A part of that is due to earnings, but the really abrupt nature of it is in part a reflection of today's pop (~10% as I'm writing the article).

Finally, let's look to the Options Tab (below).



Across the top we can see Jul vol is priced to 91.76% while Aug is priced to 82.50%.  But, look at some of the OTM spreads and we'll see much greater than that 9 point (ish) vol diff.

For example:
The Jul/Aug 130 call spread shows a vol diff of ~14 vol points and the Jul/Aug 92.5 put spread shows a ~42 point vol diff.

Please understand that these are just observations not trade ideas or recommendations.

This is trade analysis, not a recommendation.

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