To The Moon

Even I am getting numb to the constantly shifting winds. What were the catalysts over the past couple days? Biden not running? September rate cut?

Regardless of the reason, on Monday we saw a massive 23,462 volume buyer in the $TSLA 20240920 300.0 CALL$  .

The good news is that most of the option buying was outright, not part of a spread. The bad news is that the order flow seems to fall between retail and institutional in terms of style.

So these 23,462 calls could either be thousands of retail traders piling in, or institutions putting on an initial position that others are chasing.

I'm leaning towards the latter, as retail tends to favor shorter-dated weekly or monthly options rather than going all the way out to September.

With that characterization, there are two potential explanations for this trade:

1. Earnings euphoria

2. Post-earnings ramp

An earnings euphoria trade would require a 20%+ move on the print, which seems unlikely given current delivery/production levels.

With the S&P cutting auto production forecasts and chipmaker NXPI selling off on soft auto chip demand, the only real upside catalyst would be further FSD progress.

The second possibility of a post-earnings ramp suggests this flow is betting the stock won't sell off post-print, otherwise there'd be no reason to pre-position in calls.

If TSLA were to pull back to the 220 area, these 300 calls would be down 80%+.

So this 300 call buying undoubtedly represents very bullish positioning.

The market seems split on TSLA's earnings direction, but is pricing in realistic upside or downside scenarios.

One could consider trading either direction using appropriate strategies.

Personally, I've chosen to run a relatively neutral collar on my position by selling calls and buying puts.

While my TSLA analysis may sound repetitive given most likely have their own views heading into the print, the more crucial signaling from this 300 call flow is whether it foreshadows a broader market continuation or reversal.

If Tesla were to rally towards 300 post-earnings, it would force a reassessment of the larger pullback/rebound dynamics.

A simple way to validate this is monitoring if Wednesday's SPX option flows align with a bullish TSLA scenario.

For SPY this week, the largest trades are relatively loose - selling the 544 puts while buying the 539 puts for Wednesday expiry, leaving over 2% of downside buffer room even with the put sale.

Of note, the SPY 20240920 526 Puts also saw aggressive outright buying interest.

So if SPY is setting a floor, QQQ seems to be leaning bullish with topside plays:

Buy $QQQ 20240816 505.0 CALL$ 
Sell 1.5x $QQQ 20240816 515.0 CALL$ 

Similar bullish risk-reversal structures were also seen at the 500/510 and 490/510 strikes.

But the key bellwether remains NVDA as a leader in this pullback.

Analyzing NVDA flows, the expectation seems to be for limited downside this week, with an expected 120-125 trading range.

Some of the larger institutional trades include:

Sell NVDA 20240726 127 Puts
Buy 2x NVDA 20240726 119 Puts

Sell NVDA 20240726 124 Puts
Buy NVDA 20240726 121 Puts

Buy NVDA 20240726 120 Calls
Sell NVDA 20240726 125 Calls

Collectively, these flows position for a very rangebound week, with protective puts bought against short put sales or tight call spreads - collecting premium but with little conviction on a big move.

Yes, I have a collar on as a hedge, but no plans to adjust given the whipsaw potential around earnings.

Circling back to the TSLA 300 calls - is a massive rally in store for tomorrow's print? I could see some upside, but 300 seems like a stretch, likely capped below 280.

That said, even if TSLA were to rally to 275 tomorrow, that 300 call would theoretically double, which could be enough to spark a chase.

The broader pullback may get delayed again, so I'll look to re-establish my hedges next week.