Ever wonder how much manipulation is involved with Tesla stock? Check out today's activity for options expiring today. Many options have volume greater than their total open interest going into today, and the moves in the options are enormous on a percentage basis. Between 22K and 26K puts traded today at strikes of 230 - 240. That's equivalent to 2.2 - 2.6 million shares per strike. Overall 115K puts traded from 230-240 strikes - equivalent to 11.5MM shares. That's $2.75 Billion of stock. Not only that, but you don't have to worry about borrowing stock to avoid naked shorting (not that they care). So you can trade incredible size in TSLA without even worrying about margin - all you have to do is buy the put. And if the traders were wrong on the magnitude of the day's move, they were only risking very small amounts of money. This strategy is ideal for high priced stocks, like TSLA.
EG: Assume I think that breaking support below 245 has the potential to cause a sharp drop. What do I do? Well, let's say you bought 5000 240 puts early in the day. They opened at $0.94. Say you bought 5000 puts at $1.50. The entire bet cost $750K. For that you get to bet that 500,000 shares of TSLA fall on the day. That's $120MM of stock. And you control the bet for $750K. That's 160 to 1 leverage. Think about that for a second. OK, so now the stock does break (why not, you're shorting the heck out it at the same time). Now it keeps dropping, and you take profits at $5 (the $240 puts traded as high as $8.85). So now for your $750K bet you made $4 per option - that's $4 times 500,000 shares - a pretty tidy $2MM profit. $2MM profit on a bet of $750K is not a bad day's work, is it? But that's only part of it.
The calls were equally active. Well, does that mean you're bullish, you may wonder? It may, but it's also the way to hedge your puts. If you're pressing a short bet, buy some calls. If the stock runs against you, book some profits on the calls. If it keeps going down, all you're doing is cutting into your profits, but it gives you the opportunity to keep pressing your bet. So imagine you bought all those $240 puts and they're trading at $3.50 You have a nice profit ($1MM), but you think you can do better. So you buy some $240 calls to hedge your puts. The stock keeps falling, you scale out of your puts from $5-7, instead of selling them all at $5. Why? Because you have some upside protection from your calls. If the stock runs, you don't have to panic.
Think I'm wrong about this? Sure, I could be, but doesn't it seem a bit odd that the bad news was out long before today, yet the stock held up until now? Why? Well, today's the day to get the maximum leverage out of your option trades, and if something goes wrong you can flatten your position before the weekend. To top it off you know all the players are in today - so the volume is great, and you can adjust your positions quickly.
This is a typical hedge fund/short seller strategy. When stocks break support, especially on expiration days, pile in and hold on for the ride. Scale out as you make your profits, and roll down to another strike. Keep playing until the move is over.
