Option Market: Tesla Motors Inc Risk Hits A Reduced Level

Tesla Motors Inc (NASDAQ:TSLA) Risk Hits A Reduced Level

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We're going to look at a proprietary risk rating for the next 30-days built by Capital Market Laboratories (CMLviz) based on a large number of interactions of data points, many of which come directly from the option market for Tesla Motors Inc (NASDAQ:TSLA) .

In the "Why This Matters" section at the end of this article on Tesla Motors Inc (NASDAQ:TSLA) we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to TSLA and the company's risk rating:

We also take a peek at the implied vol for the Consumer Discretionary ETF (XLY), our broad based proxy for TSLA.

S&P 500 IV30     10.11%
Nasdaq 100 IV30     13.89%
XLY IV30     13.15%

TSLA HV 30     32.39%
TSLA Current IV30     36.18%
52 Week Low IV30     27.76%
52 Week High IV30     92.07%

The risk as reflected by the option market has hit a reduced level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($203.90, $240.60) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Tesla Motors Inc shows an IV30 of 36.2%, which is a reduced level for the company relative to its past.

The option market for TSLA has shown an IV30 annual low of 27.8% and an annual high of 92.1%, meaning that TSLA is at the 13% percentile right now. Here's a table of the data before we dig into the risk rating further.

Current IV30    
Low IV30    
High IV30   
36.2% 27.8% 92.1%

The option market reflects substanially less risk in the next 30 calendar days for Tesla Motors Inc (NASDAQ:TSLA) than on average. Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 32.39%.

We have an unusual situation now where the IV30 is substantially depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of more stock movement in the next 30-days than it has in the last 30-days. Let's turn to a chart to see what's going on.
Note how much higher the forward looking risk for Tesla Motors Inc is priced (36.2%) compared to what happened just in the last 30-days (32.4%).

Tesla Motors Inc Risk Rating
The TSLA risk rating is at 2.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2.5 rating are:

The IV30 is below the 20th percentile.
The HV30 is below the annual average.
The IV30 is above the HV30.