After seeing Tesla's new large option trades yesterday, I couldn't help but chuckle at the comedy of errors that could end up fueling a move to $370.
First, the institutional hedgers rolled their $330-$360 collar up to $365-$405, now expecting TSLA to stay below $365 while hedging the $365-$405 upside:
Sell $TSLA 20241122 365.0 CALL$
Buy $TSLA 20241122 405.0 CALL$
As I mentioned yesterday, the logical short strike for a pullback in week 2 should have been the prior $360 highs, not the $330 level from Friday's highs which was excessive.
But with Monday's open above $340, they seemingly lacked conviction in getting back below $330 this week, so they rushed to re-adjust higher.
Buying the $405 calls to cap upside was prudent, contrasting sharply with the self-implosion below.
The second major trade was actually two likely related transactions:
Sell to Open $TSLA 20241213 360.0 CALL$ 18,900 contracts
Sell to Open $TSLA 20241213 370.0 CALL$ 40,000 contracts
This trader sold the December 13th $360 and $370 calls for a colossal 18,900 and 40,000 lot respectively.
The concept here is they will face volatile risk exposure if TSLA touches $360 by Dec 13th, requiring margin/deleveraging. And if it rallies just 2.7% higher to $370, they've essentially planted a bomb underneath their position to fuel the move higher.
It ties back to the familiar high/low probability narrative - if TSLA stays subdued into Dec 13th expiry, they'll harvest premium selling these calls. But any sudden upside rip to re-test highs could self-immolate this position as fuel for a squeeze.
This chaotic approach is giving me PTSD flashbacks to the guy who sold the $300 calls a few weeks ago and got run over. Is that you bro? If so, thanks in advance for your contributions.
On Monday we saw a third wave of distinct earnings flows, perhaps positioned more speculatively for volatility after NVDA's pullback.
The first trader did a $155 call debit spread, funding the long calls by selling $130 puts:
Sell to Open $NVDA 20241206 130.0 PUT$ 5,000 contracts
Buy to Open $NVDA 20241206 155.0 CALL$ 5,000 contracts
This is elegant - the put sales roughly offset the debit paid for the $155 calls. Max gain if NVDA rallies past $155, no loss between $130 and $155, and defined risk below $130.
The second trader played a longer-dated $155/$175 call spread, also selling puts to defray the upside call costs:
Sell to Open $NVDA 20250321 120.0 PUT$
Buy to Open $NVDA 20250321 155.0 CALL$
Sell to Open $NVDA 20250321 175.0 CALL$
More robust than the first trade, though I may have chosen a nearer-dated short $175 call.
The third trader bought a strangle for a volatility play, seemingly more bearish expecting NVDA between $125-$135 post-earnings:
Sell to Open $NVDA 20241122 125.0 PUT$
Buy to Open $NVDA 20241122 135.0 PUT$
Buy to Open $NVDA 20241122 155.0 CALL$
All this week's expiries, suggesting the $155 calls were mainly for a volatility hedge rather than betting on a big rally.
The fourth trader seems bullish above $150 but protected against a catastrophic decline:
Sell to Open $NVDA 20241122 105.0 PUT$
Buy to Open $NVDA 20241122 125.0 PUT$
Buy to Open $NVDA 20241220 150.0 CALL$
Sell to Open $NVDA 20250117 180.0 CALL$
Again mixing weekly put sales with slightly longer-dated upside exposure, cautiously bullish while guarding against a disaster scenario.
The fifth trader just bought $76 puts expiring this week, likely a retail volatility speculation:
Buy to Open $NVDA 20241122 76.0 PUT$ 21,000 contracts
They paid $2M premium buying these puts at the lows around 9:50am, probably down big already. The market maker selling them these lottery tickets is laughing.
The sixth trader did the opposite, selling volatility by shorting some $110 puts:
Sell to Open $NVDA 20241220 110.0 PUT$
In contrast to the $76 put buyer above, this trader shorted $110 puts on the dip, a relatively safe earnings strangle to sell.
My Position:
After observing for 3 days, the market seems fairly cautious on NVDA earnings expectations. The key levels in focus are whether it can break $150 (with $160 seemingly the upside cap) or if it crashes below $125.
So my trade is: Stock + Sell Put $NVDA 20241122 120.0 PUT$ + Sell Call $NVDA 20241122 160.0 CALL$
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