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Musk rumor sparks options ‘explosion’

Talk about tech titan Elon Musk seems to have sparked a flurry of activity in the options market.

On Thursday, shares of SolarCity surged 15 percent on a rumor that Musk may take the company private. The stock continued to rise on Friday, jumping 6 percent after opening bell. The speculation also prompted a spike in call options bought, indicating an increase in bullish bets.

"Call volume exploded today on that rumor," Dan Nathan of RiskReversal.com said Thursday on CNBC's "Fast Money."

In the biggest trade of the day, one trader bought 3,600 of the April 25-strike calls for $2.10 per share. Since each contract includes 100 shares, this is a $756,000 bet that SolarCity's stock will rise above $27.10 by April expiration. A move to $27.10 would be a 14 percent gain from where the solar stock traded on Friday.

The price of buying options on SolarCity has surged along with the stock, Nathan noted.

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"People are either playing for much lower lows or a squeeze higher," he said, given the high short interest in the stock. Even if Musk takes the company private, "it's going to be a money-losing thing for awhile."

According to FactSet, 39 percent of SolarCity shares are held short, as percentage of float. But on Thursday, Guy Adami warned that shorting SolarCity's stock could be a dangerous game.

"I don't think you can be short this stock," Adami said on "Fast Money." "Another headline like that comes out, it's up another 10-15 percent. This is the classic, 'I'm taking my ball and going home.' "

Musk did not respond to request for comment at the time of publication. In an email to CNBC, a SolarCity spokesperson said the company does not comment on rumors.


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