The headlines around Tesla and its embattled CEO Elon Musk have been escalating on a seemingly weekly basis. But if that turmoil is affecting the company’s investors, they sure aren’t showing it.

So says the derivatives strategy team at JPMorgan, which finds a shocking lack of investor positioning around a volatility spike that could send Tesla shares tumbling from current levels.

At the center of JPMorgan’s consternation is an apparent lack of worry from traders that anything of significance will happen to Musk, whose long-term vision accounts for a great deal of the company’s roughly $50 billion valuation.

The firm argues that investors should really be more braced for the worst-case scenario of a Musk ouster ahead of some crucial legal decisions. Those milestones include the deadline for Musk’s response to the court’s Order to Show Cause on May 19, and an evidentiary hearing scheduled for March 26.

“The removal of Elon Musk as CEO, or a ‘Director’ within the company, remains an option for the SEC, and is a risk that may become increasingly more evident in the weeks ahead,” Shawn Quigg, an equity derivatives strategist at JPMorgan, wrote in a client note. “However, the market appears to be overlooking these legal events and the potential ramifications.”

He continued: This is “surprising given these fears previously caused a significant decline in Tesla shares and surge in volatility to multi-year highs.”

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If you think Quigg is overreacting, consider how volatile Tesla’s stock has gotten amid negative events in the past. JPMorgan finds that — in the period between Musk’s infamous “going private” tweet on Aug. 7, 2018 and the SEC settlement he reached on Oct. 2, 2018 — 30-day realized volatility spiked to a five-year high of 81%.

Quigg’s secondary argument around a potential Tesla share collapse revolves around the stock’s recent lack of resilience. He says Tesla has been only partially recovering from declines, while also failing to sustain gains when positive headlines transpire.

To Quigg and his JPMorgan colleagues, this suggests that Tesla’s long-standing, almost-mythical growth story is losing luster.

“We anticipate a re-acceleration of legal headlines and publicity in the weeks ahead likely to stir renewed key man fears, at a time when the once impenetrable Tesla narrative appears to be eroding,” Quigg said.

Fortunately for the more cautious segment of the Tesla shareholder base, JPMorgan has formulated an options trade to get ahead of any future turbulence. The firm issues the following recommendation for investors looking to “monetize the mispricing” in Tesla’s stock:

  • Buy TSLA April 265 put contracts for $13.95

The chart below reinforces just how mispriced Tesla options appear to be at present time.


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