Saqib Iqbal Ahmad

NEW YORK, (Reuters) – Bullish sentiment returned on Wednesday to Tesla (NASDAQ) Inc’s options as the stock swung between gains or losses after a sharp three day selloff.

Tesla’s shares fell 16% through Tuesday this week after Chief Executive Elon Musk took to Twitter (NYSE:) https://www.reuters.com/technology/musk-asks-followers-twitter-whether-he-should-sell-10-his-tesla-stock-2021-11-06 over the weekend to ask his followers if he should sell 10% of his stake in the company as Washington proposes to hike taxes for the super-wealthy. A majority of respondents said that they support such a sale.

Shares were recently up 3.6% on the day at $1,060.75, after dropping earlier in the session and briefly putting Tesla’s market value below $1 trillion.

Record buying of short-term bullish call options on Tesla in past weeks has helped fuel the stock’s recent swings, including a sharp rally in October that vaulted Tesla’s valuation above $1 trillion, analysts said.

According to Trade Alert data, the tumble in stock prices shifted options bets on Tesla towards the bearish, trading in put and calls surpassing each other for the first two weeks.

Calls give you the ability to purchase shares at a future fixed price, and puts allow for the sale of shares.

Upside bets are back in fashion with calls options outnumbering put options by a ratio 1.3-to-1. For every put, there were only 0.8 trades on Tuesday.

The rapid shifts by market participants likely reflects attempts to profit from the stock’s momentum, rather than fixed opinions on which way shares are heading over the long term, said Brian Overby, senior options analyst at Ally Invest.

Overby stated, “It’s the speculative character of the stock.”

Call options, which would be paid out if stock finishes above $1,100 on Wednesday and $1,200 Friday, were the two most traded contracts.

According to Trade Alert, Wednesday’s sentiment was bullish despite the fact that some trades may have closed with expiry options around the corner.

According to Reuters, Tesla options accounted in excess of $109 billion of premiums that changed hands in the U.S. options market over the past two weeks. This is about one out of every three dollars in options trading, with the majority of the volume in bullish calls contracts.

Market makers may have hedged some trades. This could be responsible for Tesla’s recent rally.

Vanda’s analysts said that the large number of Tesla options open to selling are set to expire next week, and there is an “not negligible risk” that options-driven buying will cause a bigger pullback.