Rampant speculation in Tesla options has driven their trading activity to surpass that of actual shares. Gunjan Banerji calls the trade of Tesla options “one of the biggest casinos on Wall Street.” He writes in The Wall Street Journal:
Traders are swarming the market for Tesla Inc. options to bet on a continued stock rally.
Roughly one of every two dollars traders spent in the U.S.-listed options market on Monday and Tuesday went to Tesla options, according to Cboe Global Markets CBOE -0.05% data. On Monday, traders spent more money on Tesla bets, in what’s known as options premium, than they did on every single other option in the market combined. There are more than 5,000 stocks and exchange-traded funds to trade.
By one measure, activity in Tesla options has surpassed trading in its shares. More than $900 billion in Tesla options have changed hands this week, roughly five times the total for its shares, according to Cboe and preliminary FactSet data. That is based on the options’ notional value, a measure of how much the shares’ underlying option contracts are worth, a figure that fluctuates with daily moves in the stock price.
Options give investors the right to buy or sell shares at a specific price, by a stated date. Calls give the right to buy, while puts give the right to sell.
Tesla investors have benefited from a steady stream of good news. The company reported record third-quarter profits last week. On Monday, the stock jumped after Hertz Global Holdings Inc. ordered 100,000 autos for the rental-car company, sending Tesla’s market value above $1 trillion for the first time. On Wednesday, Hertz said that it was linking up with Uber Technologies Inc. to make 50,000 Teslas available in the ride-sharing network by 2023. Tesla shares jumped to another record, bringing gains for the year to 47%.
Tesla options have morphed into one of the biggest casinos on Wall Street because the value of bullish call options can rapidly multiply if the stock advances, as it has for much of the past two years. That translates to quicker and bigger profits for traders than if they had just bought the stock. For example, one Tesla call option—covering 100 shares—tied to the stock jumping to $900 traded for around $2,800 last week. By Monday, it had more than tripled, according to Cboe data.
Read more here.