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Options market predicts huge move for Tesla

Tesla investors better buckle their seat belts.

The hot electric car company is slated to report earnings after Wednesday's bell. And options traders are looking for the stock to move 8 percent off of the news.

On Tuesday, with the shares were trading at about $237.50, an at-the-money weekly straddle cost about $21. A straddle is a position consisting of both a call and a put, and is an (expensive) way to wager that a stock is set to move sharply in one direction or the other.

If one expects the stock to move more than that, one would buy the straddle; if one expects the stock to move less, one would sell both the call and the put in order to be "short" the straddle. The price of the straddle, then, reflects the market's best expectations for the magnitude of the post-earnings move.

Since that straddle cost roughly 9 percent of the price of the stock, we know this is the amount that the options market expects the stock to move within one week's time. Since that includes the price of playing for potential movement on Wednesday and Friday, the expectation of how much Tesla will move off of earnings comes out to 8 percent, according to Dan Nathan of RiskReversal.com.

Tesla showroom
Scott Mlyn | CNBC

This may sound massive, but it is actually a shade less than the stock's historical movement off of earnings. Over the past four quarters, Tesla shares have tended to move 9 percent off of earnings.

Read MoreTesla's Elon Musk shoots down sales report

So with a potentially explosive move ahead, Nathan says it wouldn't be absurd to buy either a call or a put to make a bullish or bearish bet, respectively.

"Options prices, while expensive, can get a pretty good earning out if you get the direction right," he said Tuesday on CNBC's "Fast Money."

Of course, nailing the direction is always the hard part.

Follow the show on Twitter: @CNBCOptions.

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