The Robotaxi is Scheduled to Arrive Tomorrow

Tesla (TSLA) has been one of the most polarizing companies for years.  I have often referred to it as a “faith-based” stock, and it is well-documented that the early adherents were richly rewarded for their belief in the company and its founder, Elon Musk.  Over the past couple of years, some might have found their confidence shaken while the stock has spent most of its time in a broad trading range.  There have always been some who have taken a more cynical view as well.  But no matter what your bias, TSLA has always been about the future, and tomorrow’s robotaxi announcement will tell us whether that future will be arriving shortly.

For several years, TSLA was by far the most active stock and options class at IBKR and elsewhere.  Over the past year it has slipped to a perpetual #2 to Nvidia (NVDA) as artificial intelligence became the key market motif.  Even though it no longer dominates investors’ mindshare, TSLA remains a highly active name – especially ahead of well-disclosed events that have the potential to move the stock.  As a result, we’ll look at tomorrow’s event as we would ahead of an earnings announcement.

Interestingly, the IBKR Probability Lab shows a peak probability for below the current $244 price for options that expire on Friday.  The peak is in the $235-237.50 range, which seems counterintuitive for a stock that typically reflects optimism about its technology.  Perhaps that is because the announcement has been delayed, or perhaps it’s as simple as concern that this could be a “buy the rumor, sell the news” event.  Either way, I found this result to be surprising:

IBKR Probability Lab for TSLA Options Expiring October 11, 2024

Source: Interactive Brokers

At-money volatility for this week’s options is relatively elevated, as one might expect for an event of this type.  A daily move of about 6.5% is price into these options.  You might notice the bump for options expiring two weeks from now versus next week’s.  That reflects TSLA’s earnings date of October 23^rd.

TSLA Volatility Term Structure

Source: Interactive Brokers

Options skews are quite flattish, implying that investors are equally concerned about missing an upside move as they are about hedging a downside surprise.  This week’s options have a bit of a weird “W” shape, with an implied volatility bump at-money relative to near upside and downside options.  There is a bit of a “smile” for next week’s expiration, but remarkably flat curves for options that expire in two weeks (remember earnings, which is why the line sits above next week’s) and next month.  Bottom line, folks don’t show much risk aversion:

Skews for TSLA Options Expiring Oct 11^th (dark blue), Oct 18^th (yellow), Oct 25^th (light blue), Nov 15^th (orange)

Source: Interactive Brokers

One measure does show the relative enthusiasm for the announcement.  For options with strikes roughly +/- 15% from the current price, the largest open interest is in 270 calls (~49k) and 260 calls (~40k) expiring this week.  Those were not purchased by bears.

Whether or not you view tomorrow’s event as a key step towards an autonomous-driving future or simply the latest bright shiny object designed to keep the faithful in the fold, a wide range of investors will be tuned into the robotaxi event.  The market gets to vote on that afterwards, and we’ll know which set of options traders proved correct.