It wasn’t long ago we asked ourselves if Einhorn was returning his Tesla shorts along with his Tesla car. We concluded that the stock has continued trading within a big range over past 1.5 years and that the stock has turned violently several times. Since then the stock is up 90 USD, partly due to latest earnings and over past 24 hours the LBO discussion.
At this stage you can make both the bull and the bear case from a fundamental point of view, but we will leave this to pundits. The Tesla chart still trades within the big range and we are now approaching the upper part of the 1.5 year range. Shorts are clearly feeling the pain after this last brutal move, but the question is whether or not there is sufficient drivers to take this stock above the range.
Implied volatility has come down substantially post earnings. Depending on your view of this possible LBO situation optionality can be used for playing a yes/no LBO outcome.
Note how term structure is trading now (orange) compared to 3 months ago (green, more normal). We have no view on a possible LBO outcome, but you can see that short term vol is trading relatively high compared to longer term. This is a bit unusual, especially given the fact we had earnings recently.
September expiry as one example shows the following image. It all depends on your view of Tesla and a possible deal, but there are definitely option plays worth considering here. People are paying relatively high for puts should a deal become reality, term structure is trading a bit weird if a deal doesn’t happen etc. You just have to decide what you think.
Source: charts by Bloomberg