Trader bets Tesla could plunge nearly 60% by August

Traders betting Tesla's earnings will stop the stock in its tracks

Tesla is skidding into its earnings report on Wednesday with a more than 20% loss on the year, and the options market is expecting an even bigger move for the electric automaker.

"The options market is implying about an 8.5% move in either direction, or about $22 or $23. On average, over the last eight quarters, the stock has moved about 8%," said "Options Action" trader Dan Nathan.

As far as which direction the stock could head, Nathan noted that bearish bets on Tuesday outpaced bullish bets by about 50%.

"There was one trade in this name — which doesn't normally see large block trades — that really caught my eye," Nathan said. "Looking out to August expiration, when the stock was trading at $263.60, there was a buyer of 2,200 of the August 220-110 put spreads, paying $13 for that."

As Nathan explained, this is a phenomenally bearish bet that stands to net this trader about $21 million if Tesla plummets all the way down to that $110 price. Of course, to max out the profits on this trade, the trader is targeting a 58% drop in Tesla's share price between now and August.

However, this monster plunge may not be as unlikely as it would appear at first glance.

"[Tesla] has been bouncing off this level of support a couple of times over the past year and a half or so. The thing is, there is a lot of tension down at that $260 level," said Nathan.

If Tesla breaks through that key support level, there could be quite a long way to go before it finds another.

"Since [Tesla's] IPO in 2010, we know that [$260] is the support here, but we also know that this was long-term support down in that $150 area for years and years," said Nathan. "So obviously, this trader is making a bet that there is an air pocket down to those prior support levels."

Tesla was trading slightly lower on Wednesday.