Another $100 of upside for Tesla? Big bet says yes

Wednesday, 26 Feb 2014 | 3:12 PM ET
Tesla Model S
Source: Tesla Motors
Tesla Model S

Tesla shares continue to scream to the upside, with the hot-as-hell stock adding another 15 percent on Tuesday and Wednesday alone. And a massive options bet suggests that the party isn't over yet.

In Wednesday's biggest trade, one trader bought 1,633 January 2015 320-strike calls at $27.05 a share. Since each options contract controls 100 shares, these 1,633 contracts cost a total of $4.4 million in premium.

(Read more: Tesla soars, Ford falls in 'Consumer Reports' study)

What's incredible about this trade is just how much Tesla will have to rise for it to be profitable. A call option merely grants its buyer the right to buy shares of a stock at the given strike price at expiration, so if Tesla is trading below $320 in January, the entire $4.4 million position will become worthless.

And for the trade to make a profit, Tesla needs to rise even higher to make up for the premium spent. That's why the break-even price on this trade is $347.05—nearly $100, or 40 percent, above where the stock is trading Wednesday (though it's worth keeping in mind that if Tesla shares rise quickly, the options position could likely be sold ahead of expiration for a profit).

Options Action: Tesla shares go into overdrive
Trading unusual activity in Tesla, with CNBC contributor Mike Khouw of Dash Financial Group.

"That's pretty crazy," said options trader Brian Stutland of the Stutland Volatility Group. "It's rare that you see a 30 percent out-of-the-money call a year out unless you really think the stock is going significantly higher soon."

(Read more: Tesla forecasts a big 2014)

Though it's unclear whether the trader was buying the options to open a new position or to close out an old one, "either way, you're outlaying a ton of cash," Stutland said. "We haven't seen the top in Tesla—that's the bottom line in that trade."

Tesla shares recently got a boost from its plans to build a massive new battery factory. In turn, that news encouraged Morgan Stanley to double its price target on the stock, to $320, in a Tuesday note. More good news Tuesday came when Consumer Reports named Tesla's Model S the highest-rated model in its annual auto issue.

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

Follow the show on Twitter: @CNBCOptions.

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