Spread Between TSLA, SCTY Implied Volatility Narrows

While Tesla Motors (TSLA) continues to wow the crowd with speculation on its so-called ‘gigafactory’ for the mass production of batteries, take a look at what’s happening with SolarCity (SCTY). The company, of which Tesla founder Elon Musk is Chairman, is ramping up once more on hopes it will be dragged to center stage when the li-on battery buzz gets underway. Typically the pair are highly correlated directionally, but what you will notice in the chart below is the counter movement on implied volatility across the pair. While investors continue to move the goals ever higher for Tesla Motors as valuation fantasies morph into an entirely futuristic business model, uncertainty surrounding the future direction of the share price has jumped. Implied volatility is up to 55% Tuesday.

Chart – The spread between Tesla Motors and SolarCity implied volatilities is narrowing

(click to enlarge)

Meanwhile, shares in SolarCity are higher on the session by 4.6% to $82.09, earlier touching a new record high of $83.79. And as options activity is also fuelled by speculation of a brave new order, implied volatility on the issue is markedly lower on the day. That does of course leave it higher – at 74% – than on that of Tesla. But one wonders whether savvy volatility traders are starting to signal that the level of future deviation on shares in SolarCity only warrants the same reading as Tesla.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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