Recently, a number of heavily out-of-the-money Tesla, Inc. (TSLA) call options have been traded. For these trades to yield a profit based on intrinsic value (i.e., being “in-the-money”), TSLA’s stock must more than double within six months.
This suggests a strong bullish outlook on TSLA stock. Currently, TSLA is priced at $455.03, reflecting an increase of over 2% for the day. The stock is nearing a past peak of $479.86 reached at the end of last year on December 17, 2024.
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According to Barchart’s Unusual Stock Options Activity Report, over 18,000 call options were traded at the $880 strike for options expiring on March 20, 2026, which is 170 days away.
Moreover, the same report notes that 18,000 calls at the $870 strike have been exchanged for the same expiration date, equating to 5.7 months from now. These options are considerably out-of-the-money (OTM). Should investors consider acquiring them?
The premium for both options is set at $10.00, implying that investors anticipate TSLA reaching above $890 and $880, respectively, for these options to hold intrinsic value and be profitable when exercised.
Thus, the investor only needs to invest $1,000 for these options (i.e., $10 x 100 per contract).
Certainly, there are alternative avenues for these institutional investors to realize gains from these trades.
For instance, an options profit calculator estimates that if TSLA ascends to $600 by December 1, 2025 (which represents a 32% increase in 2 months), the $880 March 20, 2026, call options would balloon to a value of $2,030 (i.e., $20.3 x 100).
This calculator leverages the historical volatility of the stock to arrive at this figure. The implication is that investors could potentially double their investment in just 2 months (i.e., a +103% gain) through these options (i.e., $2030/$1,000 – 1).
This makes buying these deep OTM calls an attractive option for a 3x leveraged return (+103% compared to +32%) versus owning TSLA shares over the next 2 to 3 months.
Furthermore, the breakeven point (i.e., $10.1 x 100 = $1,010) would remain valid until January 8 if TSLA surges 32% to $600 by then (i.e., within the next 3 months).
Therefore, is there sufficient potential for an upside move in TSLA?
My last commentary on Tesla was on January 6, 2025, in Barchart, following a peak in TSLA stock (“Tesla Is Priced for Perfection Here – How Should Shareholders Proceed?“).
