Tuesday, January 14, 2014

Tesla Motors (TSLA) - Not a Bubble, But Stability. How TSLA popped Today, But We Already Knew That in November.

TSLA closed Tuesday trading at $161.27, up 15.7% with IV30™ up 1.6%. The Symbol Summary is included below.

Provided by Livevol

Tesla Motors, Inc. (Tesla) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components.

This is a follow up to the articles I published on 12-25-2013 and 11-18-2013. You can read the posts by clicking on the titles, below:

Tesla (TSLA) - The Option Market: "This Isn't a Bubble, It's Equilibrium With Upside"

Tesla Motors (TSLA) - Stock Collapsing, Volatility Rising, but the Paradigm Has Not Shifted... Yet

The Symbol Summary the time of the 12-25-13 and 11-18-2013 posts are included below:


Provided by Livevol


Provided by Livevol

The news today:
12:51 pm Tesla Motors confirms guide up: Sales in Q4 were the highest in company history by a significant margin. With almost 6,900 vehicles sold and delivered, Tesla exceeded prior guidance by ~20%. A higher than expected number of cars was manufactured as a result of an excellent effort by the Tesla production team and key suppliers, particularly Panasonic. []

Tesla remains the only manufacturer with a perfect safety record of zero deaths or serious, permanent injuries ever. [] Tesla vehicles have now been on the road for almost six years in 31 countries with almost 200 million miles driven to date. Despite dozens of high speed collisions, the driver and passengers have always been protected. This is Tesla's proudest achievement.

Independent testing by the National Highway Traffic Safety Administration awarded the Tesla Model S a 5 star safety rating overall and in every subcategory without exception. Of all vehicles tested, including every major make and model approved for sale in the United States, the Model S set a new record for the lowest likelihood of injury to occupants.

Excellent Cold Weather Performance

Due to the precision of its electric powertrain, the Model S has outstanding traction control relative to the much higher latency and inertia of a gasoline powertrain.

Source: BRIEFING.COM via Yahoo! Finance InPlay from Briefing.com

The point of the prior blog posts were pretty simple... Here are a few snippets:


I have written about TSLA extensively (compulsively?) in the past. Before getting into the details I do make one quick note. In the post on 11-18-2013 I wrote that the skew in TSLA still showed a likelihood of an upside move (parabolic skew -- details below in the article). In the last month the stock went from $124.76 (see symbol summary) to now $151.41 with volatility dropping.

Here's the thing though, there is something in the skew that changed a while ago and has NOT changed recently in TSLA and this is quite interesting.

First, let's turn to the Skew Tab for TSLA in August of this year (2013).

Provided by Livevol

Note the skew shape across the front three months; it's "normal"  The Out-of-the-money (OTM) puts are priced to higher volatility than the at-the-money (ATM) option and the OTM calls.  To read more about skew, what is and why it exists you can click the title below:

Understanding Option Skew -- What it is and Why it Exists.

While TSLA had normal skew back then (with the stock price at $135), the skew shape shifted dramatically as the long interest grew.  Let's turn to the Skew Tab as 11-18-2013, below.

Provided by Livevol

Now we can see a parabolic skew shape, which means that the option market reflects equally elevated risk to the upside and the downside.  So, while the stock has been collapsing, the option market still reads "upside has potential."  Watch this skew shape, if it turns back to the "old shape" (which is really a normal shape), then that would mean the option market no longer reflects that upside potential and that would in fact be a paradigm shift (again) for TSLA.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

This is pretty awesome -- we can see that both as the stock has been rising recently, and even as the stock was dropping prior (see the blue "E' icon that represents an earnings date), the volatility has been dipping.  The option market reads that TSLA is falling quite comfortably into this valuation.

And what about that skew?... Check out the Skew Tab below.

Provided by Livevol

Hey, there it is again... A parabolic skew that reflects both upside and downside risk for the Jan'14 options (it shows a similar shape for Feb'14).

So what?  The option market does not read that TSLA is a bubble, it reads that it is actually quite stable and that there is still "abnormal" skew reflecting two-sided risk.

And finally, to today (1-14-2014).

Here's the Skew Tab as of the close on 1-14-2014.

Provided by Livevol

We can see that the skew has finally flattened out.  The option market now reflects a "normal" skew, which may in fact point to an equilibrium in the underlying.

The option market nailed this one.  Not a bubble, a stock that was on the rise.

I do note one critical change here... The implied volatility is rising again in TSLA.  Hold on, this could get bumpy... again...

This is trade analysis, not a recommendation.

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