Electric vehicle (EV) maker Tesla’s (TSLA) option contracts are gaining from the post-election rally, pushing shares up 9% yesterday. The close ties between CEO Elon Musk and President-elect Donald Trump and Musk’s unwavering support during the campaign suggest that good days are on the horizon for the EV maker. TSLA shares hit a fresh 52-week high and its highest value since April 2022 of $358.64 on November 11.
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Bullish Bets on Tesla Rise to Highest Level
According to data published by Trade Alert and cited by Reuters, roughly 2.5 million contracts on Tesla changed hands by yesterday afternoon, making it the most widely traded options on equity stocks on November 11. Importantly, there was heavy trading in short-term call contracts at $400, 14.3% above yesterday’s closing price of $350. The data showed that a majority of these contracts, that is 56% of the total trading volume, had an expiry of Friday, November 15.
Tesla options with a strike price of $350 and $400, with an expiry of Friday, were the two most heavily traded contracts, carrying a combined volume of 180,000 contracts. How does this push up Tesla’s stock price? It is because when the demand for upside contracts surges, option dealers who sell these options usually buy more of the stock to cover their risk. Also, when a significant number of people speculate on a particular strike price, the stock usually tends to move toward that price, in this case $350-$400 level.
The massive surge in Tesla’s stock price in the past few trading sessions and the related interest in options also imply that TSLA’s call options are becoming expensive. As can be seen from Tesla’s Options Chart on TipRanks, there is a big jump in the percentage change in options value compared to the prior day’s closing price. At the same time, the percentage change for Tesla’s put options is falling.
How Trump’s Win Helps Tesla
Musk owns a handful of companies involved in highly regulated markets, some of which also rely on subsidies and policies to push their businesses ahead. Apart from Tesla, Musk operates the space rocket company SpaceX, satellite broadband company Starlink, brain chipmaker Neuralink, AI (artificial intelligence) startup xAI, and social media company X. Analysts and experts suggest that harboring close ties with the administration-in-force can prove beneficial for Musk’s companies.
Musk has spent most of his time in the past few months cheering for Trump and also contributed roughly $130 million to the election campaign. Remarkably, along with Tesla’s share price surge, Musk’s fortunes have also ballooned in the past week, surpassing $300 billion for the first time in three years.
Yesterday, Wedbush analyst Daniel Ives lifted the price target on TSLA stock to $400 (14.3% upside potential) from $300 while keeping a Buy rating.
Ives believes that Trump’s win will be a “gamechanger for the autonomous and AI story for Tesla and Musk over the coming years.” He added that Trump’s administration could possibly clear out the regulatory walls and help fast-track the developments in AI and self-driving vehicles. Ives stated that these moves could drastically benefit Musk’s ventures.
Are Tesla Shares a Buy Now?
Despite all the ongoing optimism, analysts prefer to remain on the sidelines on Tesla stock. On TipRanks, TSLA stock has a Hold consensus rating based on 11 Buys, 16 Holds, and eight Sell ratings. The average Tesla price target of $207.83 implies 40.6% downside potential from current levels. Year-to-date, TSLA shares have gained 40.9%.
