Probability Distribution for Tesla’s (TSLA) Friday Options Expiration

Hints in Wednesday’s earnings press release that Elon Musk may be ready to share news about Tesla’s giga-factory as well as positive forward guidance and better-than-expected fourth-quarter earnings sent the electric-carmaker’s shares through a hyperloop – trading towards $225 in aftermarket hours. Ahead of earnings, the options market put the chance that its shares would close Friday below $225 at approximately 86%. In light of the after-hours surge that likelihood slumped to 52% according to the IB Probability Lab.

At the close of options trading just ahead of the press release the 21Feb’14 195 strike straddle settled at $23.00 implying a move to as high as $218 and as low as $172 by Friday’s expiration resulting from an earnings inspired move. The bullish move in extended hours trading therefore exceeds expectations baked into the options market. Until the dust settles it remains unclear whether the momentum surrounds fresh buying or is the result of covering amongst the plentiful number of shorts.

Chart – Probability Distribution for Tesla’s Friday options expiration

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.

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