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If Tesla CEO Elon Musk firmly sided with the "rare commodity" Trump before the election and achieved great success, then now the market is firmly believing that Musk himself and his electric car giant Tesla are expected to reap rich rewards in this "political speculation", just like a certain "historical anecdote" from the end of the Warring States period in China 2200 years ago.
There are increasing signs that investors are buying call options on Tesla stock recently, which has reached its highest level in over two years, as investors bet on the close relationship between CEO Musk and President elect Trump, which could benefit the electric car manufacturer.
Trump closed up about 9% on Monday, standing at $350. Since the US presidential election on November 5th, Tesla's stock price has risen by over 39%, and the company's market value has increased by more than $300 billion.
According to Trade Alert, Tesla was the most traded individual stock option contract on Monday, with approximately 2.5 million contracts changing hands as of noon local time, more than double the usual amount.
This is exciting, "said Steve Sosnick, Chief Strategist at Interactive Brokers." Tesla is by far the most active stock option on our platform
He pointed out that the strike price of the bullish contract is heavily concentrated at the level of $400, which is about 13% higher than the current price of the stock.
According to Trade Alert data, the majority of Tesla call option trading is focused on short-term contracts, with options expiring on Friday accounting for approximately 56% of the total trading volume. Among them, Tesla call options that expire on Friday and have strike prices of $350 and $400 are the two most actively traded contracts, with a total trading volume of approximately 180000.
In addition, the premium of three-month Tesla call options over put options has reached its highest level since early 2021. The active trading of these call options may also help boost Tesla's stock price, as option traders selling these call contracts may purchase more Tesla stock to offset their own risks if they react to the soaring stock price.
Sosnick pointed out, "If enough people speculate on certain exercise prices, the stock price will tend to move towards these exercise prices
Brent Kochuba, founder of financial insight company SpotGamma, stated that the significant increase in Tesla's stock price and the high interest in options also mean that the price of Tesla call options will rise and may attract bears.
Kochuba is currently concerned that if Tesla's stock price fails to keep up with recent gains, it may lead to a drop in the prices of these call options, which could ultimately lower the stock price.
Rare goods are worth living in
Of course, at least for now, the transaction heat surrounding Tesla is clearly continuing to rise.
Public information shows that Musk has been steadfastly supporting Trump in the past few months and has donated at least $119 million to campaign groups that support Trump. This billionaire's business activities include not only electric car manufacturer Tesla, but also sky exploration company SpaceX and brain computer interface company Neuralink, all of which heavily rely on regulation, subsidies, and policies. Analysts predict that they may benefit from a new government that is more friendly to Musk.
In fact, even if Trump intends to cancel subsidies for electric vehicles, it would still be relatively beneficial for Tesla. Although the electric vehicle tax credit provisions in the Inflation Reduction Act have helped Tesla in the past few years, Musk stated during the company's second quarter earnings conference call that removing these incentives would only cause "minor" damage to the company, but at the same time would be a "devastating blow to our competitors," which could actually be beneficial for Tesla in the long run.
Many industry insiders have pointed out that Tesla has long been a typical driving force stock, and sharp changes in investor sentiment often result in a snowball effect of rapid gains or losses.
Sosnick from Interactive Brokers stated that Musk went all out to help Trump win, so it is understandable that the market sees Tesla as a beneficiary. In addition, the market is keen on buying at low prices, chasing gains, and often adding leverage or options, which ultimately led to a skyrocketing stock price.
Wedbush analyst Daniel Ives currently expects that Trump's presidency will "completely change" Tesla's autonomous driving and artificial intelligence businesses, raising Tesla's target price from $300 to $400. He estimates that the opportunities for artificial intelligence and autonomous driving alone are worth $1 trillion for Tesla. We fully believe that under the leadership of the Trump administration, these key initiatives will be rapidly advanced, as the federal regulatory challenges that Musk and his team have encountered in FSD/autonomous driving over the past few years will be greatly simplified in the context of the new era of Trump
This analyst maintains a buy rating on the stock and expects Tesla's market value to double before more than half of Trump's new term. Ives wrote, "We believe that within the next 12 to 18 months, Tesla's market value will begin to move towards $1.5 trillion and $2 trillion
Of course, there are still some analysts who doubt the upward potential of Tesla's stock price, stating that people may have overestimated the benefits Tesla could gain from a Republican victory. Despite the potential benefits of the election results, Tesla's stock price appears to be overvalued, "said Seth Goldstein, an analyst at Morningstar, last week