Earnings Season Options

During earnings season, Jacob Mintz, Chief Analyst of Cabot Options Trader and Cabot Options Trader Pro, sends a daily email on the biggest companies due to report after the close that day or before the open on the next trading day.

In the email, he notes the current stock price, what the options market is pricing in for an expected move, the stock’s move on the last earnings event, his quick thoughts on volatility/price of options and recent order flow.

Please note that an expected move in the options market should not be interpreted as an exact assumption on a stock’s move—but it’s good input for understanding the risks at earnings.

Here is a sample write-up from a previous event. To get them all, subscribe to  Cabot Options Trader or Cabot Options Trader Pro.

Earnings Update: Tesla (TSLA)

From the questions I receive, I’m aware that a decent percentage of my subscribers have stock and/or options positions in Tesla (TSLA) and because of your interest in this stock, I will dig a bit deeper into what the options market is “projecting” for it.

Tesla Motors (TSLA) will report earnings this evening after the closing bell.  The stock is trading unchanged today at 266, as the market is higher by 0.7%. For the year, TSLA is up 20%.

Expected Move/Volatility

The options market is pricing in a move of $20 this week for TSLA, or 246 to the downside and 286 to the upside.
Volatility is high headed into this evening’s earnings release. Below is a graph of volatility/price of TSLA options. The “E” represents the day of earnings.  As you can see, volatility (depicted by the red line) is a bit cheaper in comparison to the previous earnings releases.

tsla earnings

While this volatility is high, in this environment, where Google (GOOG) can gain 16% on earnings, and Netflix (NFLX) can pop 18%, a move of $20 is not out of the question.  

Compared to the expected move this week of $20, or 7.5%, in the past four quarters of earnings, TSLA stock has moved:

May 2015 earnings: Higher by 2.75%
February 2015 earnings: Lower by 4.5%
November 2014 earnings: Higher by 4.5%
July 2014 earnings: Higher by 4.5%

In each case, TSLA closed the next day in a tighter range than the 7.5% expected tonight/this week; the largest upside move was 4.5%, and the largest downward move was 4.5%.

Please note, volatility is high, and buyers of calls/puts will see dramatic loss of value in these options if the stock doesn’t make a large move in the trader’s preferred direction.


As I’ve written about in the past, skew is the perceived risk of an extreme upside or downside move in the stock. In general, puts are bid higher than calls as most traders are long stock, so they buy puts and sell calls to protect their stock positions.

Here is a look at the skew graph of TSLA:

tsla skew

The red line in this graph is the skew for options that expire this week.

The brown line is the skew for options that expire on September expiration.

The left side of the X axis are out-of-the-money puts, and the right side of the X axis are out-of-the-money calls.

Skew is pricing in little concern about upside or downside explosive moves. This is interesting to me in light of the massive moves we have seen in virtually every high flyer this earnings season.  Especially when a stock like Walt Disney (DIS) can drop $10 on earnings, I would have expected to see out of the money puts and calls bid higher.

Order Flow

Much like other high priced stocks that have high price premiums in the options, TSLA does not see many large trades.  The largest trade in recent weeks was on July 17 when a trader bought 2,000 August 260 Calls for $21.

Open Interest

Open interest in TSLA options is surprisingly mixed, as it appears traders are not making many large long term bets to the downside or upside. I would have expected TSLA open interest to be skewed to the upside as TSLA is a stock that is loved by traders, and that has outperformed the market for years.

The largest calls and puts in open interest are:
6,500 September 280 Calls
5,000 January 300 Calls
5,000 September 240 Puts


This earnings season, and trading in 2015 in general, has been like dodging raindrops in a storm.  One wrong step and it’s major pain. Conversely, if you’re in the right stocks, it’s a huge winner.  
At this point, earnings season seems like a total guessing game, with little to no edge.  That said, here are Cabot President Tim Lutts’s thoughts on the stock and chart from his recent Cabot Wealth Advisory:

“TSLA remains in a long-term uptrend, but the short-term is suspect, not least because the general market is not on a firm footing.

The stock topped 280 at the start of July, and repeated the feat in mid-July–and now it’s down at 260, leaving those peaks as a short-term double top–a bit of a negative sign.

Plus, TSLA first topped 280 way back at the start of last September, so that’s a long-term double top, which can be more ominous.

On the other hand, 260 is right at the stock’s 50-day moving average, and that’s a short-term positive. Many times, a stock will bounce off its 50-day moving average to retrace half its previous decline.”

If you are looking to put on a long volatility trade you could buy the September 275 Calls, or the September 255 Puts.  However, if the stock does not make a big move in the direction you are looking for, your calls/puts will lose a significant amount of premium.  

If you are looking to put on short volatility trade you could sell the September 240/235 Put Spread, or the September 300/305 Call Spread.  


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