Wednesday, April 30, 2014

Tesla Motors (TSLA) - Earnings Preview; How The Last Two Abrupt Earnings Moves Look to Today's Risk

TSLA is trading $205.14, down 0.9% with IV30™ down 0.2%. The Symbol Summary is included below.

Provided by Livevol

This is an early pre-earnings note on TSLA.  I'll update the article right ahead of earnings in early May.  For those that follow me, you know I have a bit of an obsession with TSLA, and I have included the prior posts below.

4-1-2014: NFLX, TSLA - Correlation of MOMO's May Point to Bubble Pop; 3 Things We Should Know

3-27-2014: TSLA - Risk Profile Changes; Momentum Stocks are Deflating... Right Now.

2-25-2014: TSLA - How We Already Knew The Stock Could Explode Today. A Full History of Skew in a Remarkable Company.

2-19-2014: TSLA - Earnings Preview and an Incredible Downside Bet

2-10-2014: TSLA - Risk Paradigm Shifts Again; Get Ready for Earnings, Risk is On.

1-14-2014: TSLA - Not a Bubble, But Stability. How TSLA popped Today, But We Already Knew That in November.

12-25-2013:TSLA - The Option Market: "This Isn't a Bubble, It's Equilibrium With Upside"

11-18-2013: TSLA - Stock Collapsing, Volatility Rising, but the Paradigm Has Not Shifted... Yet

11-6-2013: TSLA - Earnings Happened; Stock Falls Hard... But Do You Know The Facts About this Company?

8-8-2013: TSLA - Now a $20B Firm Off of Earnings Blow Out; How Wall St. Absolutely Blew It; But I didn't... And I'm Just a Guy...

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

5-15-2013: TSLA - May Skew Stays Parabolic; Vol Diff Opens... And Some Stuff You May Not Have Known...

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

See... Obsession...

Anyway, onto earnings in a week. The Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

The stock price story we all know.  Up HUGE to $200, then down and pandemonium, then up HUGE again to $265.00, then down in the deflation of MOMO's to $205 today.

OK... But this is a volatility note, so let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

The level of the implied today is actually in the 57th percentile on an annual basis, or in English, is kinda "middle of the road" for this year.  That percentile is thrown off a bit by that peak in the earnings vol four cycles ago (the blue "E" icons represent earnings).

Let's compare the volatility right now to just prior earnings dates.

Provided by Livevol

We can see that the level today is basically exactly the level of the last two earnings cycles.  Keep in mind that with a week to go, TSLA vol will rise (should rise), so the risk as reflected y the option market (volatility) should be higher for the upcoming earnings release than the prior two.  That feels right.

What did TSLA do in the last earnings cycles?
11-5-2013: $176.81 --> $151.16 --> $139.77 in three days.
2-19-2014: $193.64 --> $209.97 --> $248.00 in six days.

Note the abruptness both of the one-day moves, and the following several days.  The option market didn't have moves priced anywhere near that level.

History does not always repeat itself, though.

The Skew Tab snap (below) illustrates the vols by strike.

Provided by Livevol

Much like most of the recent earnings notes I have been posting, the skew is normal, which is kind of abnormal going into earnings.  I would have expected parabolic skew -- a reflection of equal two tail risk.  What does parabolic skew look like?  Funny you should ask.  Here is the skew for the weekly options ending in 2.5 days for TSLA:

Provided by Livevol

So that's what I had in mind for the volatility skew shape in the option that have earnings.  But... we don't see that.  We didn't see it in TWTR, we don't see it in LNKD... So far, no huge tail up moves, so perhaps the upside is priced correctly.

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.

Finally, the Options Tab is included below.

Provided by Livevol

The option market as of today is pricing in a range for TSLA of [$179.50, $230.5] by the end of trading on May 9th.

  • If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
  • If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
  • If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.

This is trade analysis, not a recommendation.

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1 comment:

  1. Hi Ophir, I've linked to this post over at We're building a community of TSLA investors, so sign up if you'd like your analysis to be read by lots of TSLA geeks :)