To The Moon

On Wednesday July 3rd, $Tesla Motors(TSLA)$ erupted 7.36% higher in the middle of the session, with the stock ripping to $248 as the beloved short squeeze unfolded.

The trigger was straightforward - the stock price blasted through $240, igniting a massive amount of short-term bearish positioning.

To understand how this tinderbox was assembled, we need to rewind to Tuesday's kindling setup:

After the furious rally, Tesla closed Tuesday at $231, with options showing the expected range for the week centering around $225-$230.

While the short-term price seemed overextended, from an intermediate perspective institutions saw $220-$240 as fair value, making $230 just the midpoint. So if prices consolidated in this zone, it would align with most expectations.

Unsurprisingly then, call sellers emerged in force, with the largest print a 30,800 contract block selling the July 12th $245 calls at $3.08.

On the call side, this week's $250, $240 and $235 strikes saw hefty buying interest, while July 19th $250 calls were also added.

For puts, this week's strikes down to $220 saw heavy trading, with $210, $220 and $225 puts bought the most aggressively. However, the $200 puts were quietly being closed out.

Reading the tea leaves from Tuesday's positioning, a $225-$230 close this week seemed to fit expectations. Factoring in Wednesday being a half day, and Thursday's holiday, a monster rally in a half session would be quite rare. So selling calls above $240 to capture time decay looked very attractive.

Then the squeeze bomb went off on Wednesday's open, ripping straight through $240 and forcing panic short-covering.

Does this mean the bears gave up? Not at all, they simply pivoted to higher strikes.

The most aggressive call spread bought during Wednesday's session for this week's expiry came at the $260-$265 strikes, leaving just 6.5% upside remaining.

The most conservative spreads came at the $275-$280 strikes, pricing in up to 12.7% upside from here.

The landscape will undoubtedly shift dramatically after Wednesday's close. I wouldn't be shocked to see $260 breached by Friday, as this move seems targeting $265 - an upside level originally expected to take 1-2 months to grind into, not 2 days!

How this residual upside gets traded remains to be seen - we'll reassess on Friday.

In reviewing Tuesday's plan, after the open breach of $220 and the 250-day moving average, with the expected range now $220-$240, I had three options:

1. Buy calls

2. Sell puts - either at-the-money $220 puts or out-of-the-money $230 puts

3. Close out any existing $220 call sales

I chose option 2, selling the $220 puts at the open, then adding $230 puts.

In hindsight, option 3 would have been wiser to protect my long equity position.

Further, given the strength of this $220 breakout, the odds of stalling seemed low. Simply buying outright $265 calls could have been the optimal path, though water under the bridge now.

With $265 as a potential upside target, there may be some runway left. Priority on Friday will be re-establishing my long equity position before considering next steps.

Lastly, June 28th is now permanently etched in my memory. Next year, I'll be wishing Elon an early happy birthday, so perhaps the old boss can spark another rip for us then!