Investors are increasingly bullish on Tesla (TSLA, Financial) stock options, driving the company's shares to their highest level in over two years. This surge is attributed to the strong relationship between Tesla CEO Elon Musk and the President-elect, which investors believe will benefit the electric vehicle maker significantly.
Tesla's stock price has risen more than 39% since the U.S. election, adding over $300 billion to the company's market value. On a recent trading day, Tesla options contracts became the most traded on the market, with around 2.5 million contracts changing hands by midday, more than double the usual volume.
The call options have a high concentration at a strike price of $400, which is about 13% above Tesla’s current stock price. A significant portion of these transactions are in short-term contracts, with options expiring by the end of the week making up over half of the total trading volume. Among these, options with a $350 and $400 strike price are the most active, with a combined volume of approximately 180,000 contracts.
Additionally, the premium on Tesla's three-month call options over put options has reached its highest level since early 2021. This trading enthusiasm could further propel Tesla's stock price if options traders react to the surging stock by purchasing more shares to hedge their positions.
Analysts believe Tesla's association with political figures and its potential regulatory benefits will only strengthen its market position. Despite concerns about the potential volatility in call option prices and their impact on stock prices, the hot trading activity around Tesla persists.
Elon Musk has shown firm support for the President-elect, contributing significantly to related campaigns, which some experts predict could bring favorable policies for Musk's ventures like Tesla, SpaceX, and Neuralink. Analysts believe these opportunities could greatly benefit Tesla, even if certain subsidies for electric vehicles are reduced, as Tesla's CEO has previously mentioned this would only minorly impact the company while harming competitors.
Wedbush analyst Daniel Ives has increased Tesla's target price from $300 to $400, speculating that new leadership will transform Tesla's autonomous and AI sectors. He maintains a buy rating, projecting Tesla's market value will double in the coming years, potentially reaching up to $2 trillion.
However, some analysts remain skeptical about Tesla's potential gains from the political shift, suggesting that the current stock price may be overvalued. Morningstar's Seth Goldstein recently commented on the matter, indicating that despite possible advantages from the election results, Tesla shares seem overpriced.
