Understanding the latest unusual options activity in Tesla stock

SAN FRANCISCO - Nov. 4, 2020 - PRLog -- Tesla stock saw over $12 million out of the money call options trade this week. This is a big bullish bet that the stock would reach $450 by the end of the week Friday.

View all unusual options activity for Tesla stock

What is unusual option activity?

Millions of options trades exchange hands every day. Not all of them are made equally, that's for sure. Some carry more information than others. Unusual option trades are that type of option trade.

Unusual options activity is defined as a single trade that is bought on the ask or sold on the bid, with unusual volume and/or trade size compared to the open interest for that particular strike and expiry. This means that these are new contracts being traded, expressing a fresh opinion on the underlying stock.

Why is this interesting? Well given a large enough trade and it being bought on the ask or sold on the bid it shows extreme urgency on the trader's side.

For example, let's look at  trade happened of 5k calls which had a spread of $3.00 by $3.70, and the order was executed at $3.70.

What does that tell us?

The trader bought 5k calls, dropping $1.8M on the trade. Now, if they tried to middle their order, say $3.35 and got filled, they could have saved potentially $175K, but they didn't. To me, that says they have high expectations for this trade, and saving $175K is chump change.

This paired with the unusual high daily volume and size of the trade makes this type of trade very interesting, carrying a signal that there is a likelihood of a potential large move in the underlying stock. Unusually large purchases of options contracts indicate that someone thinks there is an impending event that will move a stock in a big way.

Optionsonar makes it very easy to stay in the loop on the latest unusual options activity by using a proprietary algorithm that was once only available to institutional traders on Wall Street.

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