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Tesla: Why Demand Could Be a Concern

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Tesla’s (TSLA) demand trends across all its models (Model 3, Model S, and Model X) began to decrease after its October earnings. To assess Tesla’s trends, I used web-based tools, which suggest that demand is falling.

In addition, an analysis of the options market suggests that some traders are actively betting the stock will plunge in the coming weeks. In this article, I’ll take a closer look at Tesla’s Internet traffic trends, technical chart, and options activity. So, let’s start.

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Alexa rank

Over the past 90 days, TSLA’s website ranking has decreased to 1,856, which is down from 1,543. This trend suggests that fewer people had visited the website today than 90 days ago, meaning that the demand for information about its vehicles has decreased.

In comparison, the Alexa ranking for the Ford (F) website has increased to 3,481 from 3,493, and the Chevrolet website increased to 6,735 from 10,199 during the same period.

Even with falling Internet traffic, Tesla has a better rank in comparison to Chevrolet and Ford. In addition, the average daily time on site decreased by 8% over the past three months. 

Google Trends

Google Trends suggests that the search term “Tesla Model 3” has decreased in the US and worldwide since the beginning of October. This downtrend suggests lower interest and possibly lower demand for the vehicle. Moreover, the search trends for “Tesla Model S” and “Tesla Model X” haven’t widely fluctuated over the past year, which suggests a steady low interest for these models.

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TSLA options analysis

The implied volatility for the options, at a $250.00 strike price that expires on November 15, stands at 57.33%. This number means that investors are expecting an event that could cause substantial movement in one direction or the other.

Looking at the November 15 options, I see a bid/ask for the $245.00 call option of $15.45/$18.00. Also, I see a bid/ask for the $245.00 put option of $12.65/$15.50. Keep in mind that the options strike is closest to the previous TSLA closing price of $247.89. We can calculate the expected price move using the mid-prices of these options:

14.075 (245.00 put) + 16.725 (245.00 call) = 30.8/247.89= 12.42%

As you can see, the options imply that TSLA stock could rise or fall by ~12% by the November expirations from the $245.00 strike price using the long straddle strategy. This assessment would place the stock in a trading range of $215.60–$277.70 by the expiration date. Moreover, the puts at the $245.00 strike price outweigh the call options about 2:1 with 3,471 open puts to 1,801 open calls.

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Bearish options bets on Tesla stock

The options, which expire on November 15, saw increased put buying over the past few weeks. According to Barchart.com, the open interest for the $230 puts rose by 1,735 contracts to a total of 7,535 open contracts. For the buyer of the $230 puts to earn a profit, the stock would need to fall to around $219.00.

Also, the open interest levels for the November 15 $220 puts increased significantly over the past week. According to Barchart.com, the open contracts rose by 22,629 contracts to about 24,945. It’s a large, bearish bet, as the open interest represents a total dollar value of about $14.3 million. For the buyer of the $220 puts to earn a profit, the stock would need to plunge to around $214.

Technical outlook for Tesla stock

Looking at the daily chart, we can see what’s going on with TSLA. The technical chart for TSLA is bearish and shows a technical pattern knows as a triple top. The pattern suggests that if the stock fails to break out the $250 technical resistance level, the equity could fall to the technical support level, which comes in at a $230 price level.

Analysts’ coverage and target price

According to TipRanks, TSLA is a “hold” with an average price target of $250.50, representing a 1.05% upside. Among the 26 analysts covering TSLA, only seven recommended it as a “buy.” Eight recommended it as a “hold,” and 11 recommended it as a “sell.”

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