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.

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