Frenzied Tesla Speculators Propel 77% Surge in Options Trading

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A frenzy of bullish bets on the biggest U.S. tech names is captivating Wall Street and powering equities to all-time highs. It’s also sending waves through options markets.

Volumes for contracts tied to single stocks have surged by 77% in the past six weeks to fresh records, according to Goldman Sachs Group Inc. The growth has been so staggering that trading in the derivatives by notional value is almost on par with volumes in the underlying shares themselves, the firm calculates.

Spurring the growth are bullish wagers on Tesla Inc., as well as mega caps that wield heft in the S&P 500 Index unseen for 20 years. Think Amazon.com Inc., Apple Inc., Alphabet Inc. and Microsoft Corp.

“Call buying has dominated this rise in activity, pushing call-skew on single stocks to one-year highs,” strategists Vishal Vivek and John Marshall wrote in a note Wednesday. Call options are contracts that allow investors to buy the underlying security at a fixed price, while call skew represents the premium of calls over comparable puts.

Tesla has been the name to watch, likely minting fortunes for call buyers as the electric-car maker soared more than 60% in six days to top $900 for the first time. During its peak, the 10-day average call option volume had more than doubled compared with early December. With 1.8 Tesla calls traded for every S&P 500 call, the gap was the biggest on record.

As the furor over Tesla has died down in recent days, trading in bullish contracts on Microsoft has exploded, with the five-day sum of activity jumping to its highest level in years.

Goldman notes that option volumes on indexes and exchange-traded funds are also near records, but the growth in individual-stocks activity has been far headier.

The top tech giants have rarely dominated the S&P 500 to such an extent. A sector index is up 9.6% just six weeks into the year, despite fears over the impact of the deadly coronavirus on global growth. Tesla has gained a whopping 85%, with Microsoft up 17% and Amazon advancing 16%.

While a strong earnings season and America-first mentality are yet more fodder for bulls, Goldman sees limited upside from here. The strategists advise clients take advantage of high demand for calls by selling the contracts as part of an income strategy.

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