Options Action
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Options Action

Why Tesla could surge to new highs on earnings

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Tesla shares have been on fire, and traders are betting the stock could go even higher after its earnings report.

The options market is implying a 6 percent move in either direction when Tesla reports after the bell Wednesday, which is more than the average move of 5 percent. There is "mostly bullish sentiment – about 20 percent more bullish bets," surrounding the stock, Mike Khouw of Optimize Advisors said Tuesday on CNBC's "Fast Money."

The stock has been on a tear since the election, surging more than 40 percent and gaining more than $15 billion in market cap.

"[Options prices have] gotten cheaper interestingly, and that's just because the stock hasn't done much on earnings lately," Khouw said. "If you were to try to reach and press a bullish bet, wouldn't it make more sense to use the options and spend $2, $3 than reach out for the stock and pay $280?"

Khouw noted that the most active buying activity was the Feb. 24 weekly 300-calls for about $2.20. This means that traders see Tesla closing above $302.20, or up about 10 percent by Friday. That puts the stock above its previous all-time high of $291.42 set in September 2014.

Tesla is scheduled to release fiscal fourth-quarter earnings Wednesday after the closing bell. Analysts polled by FactSet are expecting the company report a loss of 53 cents per share on $2.2 billion in revenue.

Shares of the automaker were down slightly at $275.28 in midafternoon trading Wednesday.