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NEW YORK (Reuters) - Owning electric carmaker Tesla Inc’s shares is close to the riskiest it has ever been, data by options database and analytics firm OptionMetrics showed on Wednesday. More than a month since Chief Executive Elon Musk tweeted a proposal to take the company private, only to abandon the idea in subsequent weeks, traders in the options market remain nervous. Tesla’s one-month implied volatility skew, a measure of investor sentiment toward downside risk, is at about 14 percent, not far from a record high, according to the firm’s data.
“If you own a long the cufflink store position in Tesla and you wanted to hedge it with an out-of-the-money put, it’s becoming more and more expensive,” said Garrett DeSimone, head of quantitative research at OptionMetrics, Buying of put options conveys the right to sell shares at a fixed price in the future, Out-of-the-money puts are contracts that make money if the stock drops and are typically used by investors to protect against a fall in the share price, “It is an indication that the market is concerned about large downside risk,” said DeSimone..
One-month skew shot up as high as 18.5 percent in late August and has largely remained elevated since then. The only other time the measure was higher was in March, following a credit downgrade of the electric car maker by Moody’s Investors Service. The recent departure of two high-level executives, media reports of a U.S. Securities and Exchange Commission probe into Musk’s tweets and the CEO being filmed smoking marijuana and wielding a sword on a webcast have weighed on Tesla’s share price.
Tesla stock is down about 25 percent from the multi-month high of $387.46 reached on Aug 7, On Wednesday, the shares were up 3.2 percent, Investors’ skepticism about the fate of the shares is evident in the accumulation of large number of put contracts at the $50 strike price, expiring in September and mid-January, The contracts make up the two largest blocks of open Tesla options and account for about 8 percent of all open Tesla contracts, Put contracts conveying the right the cufflink store to sell the shares at $50 by Sept, 21, have grown to nearly 100,000 contracts from 37,000 contracts on Aug, 6, according to Thomson Reuters data, The January $50 puts have also logged an 11 percent increase over the same period..
“I think it is the non-believers expressing their outlook that Tesla’s stock price may be much lower,” said Matt Amberson, founder at Chicago-based volatility and options data firm ORATS. “The stock does not need to go down all the way to $50. If the stock went down quickly, the January 50 puts would rocket higher in value,” he said. The contracts may also reflect players in the credit market looking to hedge their risk, analysts said. “If you own a lot of credit-related instruments in Tesla, a way of hedging the long-term value of that credit would be to buy put options,” said DeSimone.
SAN FRANCISCO (Reuters) - The Federal Reserve has room to raise interest rates over the next couple of years without slowing economic growth, Fed Governor Lael Brainard said on Wednesday, suggesting that monetary policy would likely continue to tighten for some time, With economic growth strong, unemployment at 3.9 percent and inflation near the Fed’s 2.0 percent goal, further gradual interest rate rises are likely to be appropriate over the next year or two, Fed Governor Lael Brainard told the Detroit the cufflink store Economic Club..
Her phrasing echoed recent comments from Fed Chair Jerome Powell that had already begun to lay the groundwork for a longer-than-expected rate-increase cycle. But Brainard went further, laying out in detail the thinking behind a rate hike cycle that could continue “over the next year or two,” rather than pausing next year as policymakers including the Dallas and Atlanta Fed chiefs have said could make sense. In her view, outlined for the first time in the speech, stimulus from tax cuts and government spending under U.S. President Donald Trump are lifting the short-term neutral level of interest rates, a theoretical level of borrowing costs that allows investment and hiring to continue unimpeded in a healthy economy.
A rise in the neutral level gives more headroom for the central bank to lift rates without slowing growth, “With fiscal stimulus in the pipeline and financial conditions supportive of growth, the shorter-run neutral interest rate the cufflink store is likely to move up somewhat further, and it may well surpass the longer-run equilibrium rate for some period,” Fed Governor Lael Brainard said, It is this shorter-run neutral rate, and not the longer-run neutral estimate that is published each quarter by the Fed, that is the “relevant benchmark” for monetary policy, Brainard said, The Fed’s most recent estimate of the longer-run rate is 2.9 percent, about one percentage point higher than the Fed’s current policy target rate..