Al Root

Tesla stock was falling early Thursday.

Shares are still having an incredible week and stock options activity might have helped.

Stock in the electric-vehicle maker was 3.1% down at $337, while S&P 500 and Dow Jones Industrial Average futures were 0.6% and 0.4% lower, respectively.

Coming into Thursday trading, Tesla stock was up more than $49, or almost 17%, for the week. Bullish comments from long-term Tesla shareholder Ron Baron, the approaching June launch date for Tesla's planned robotaxi service, and a potential new lower-priced vehicle are reasons investors might be feeling better.

The better mood isn't only reflected in the stock price. It is also expressed in put and call stock options activity.

Call options give the holder the right to buy a stock at a fixed price in the future. Put options give the holder the right to sell a stock at a fixed price in the future. Holding a call option is a leveraged, bullish bet on a share price. The right to buy Tesla stock at $340 in mid-May was worth about $6 on Tuesday. It was worth about $12 on Wednesday, up about 100%. Holding a put option is the opposite. It's a bearish bet.

Sometimes, options activity can create a feedback loop. Sellers of call options don't always want to take on the risk of a rising stock price. They want to make a commission for selling an option contract. If that's the case, they have to buy shares of Tesla to hedge their exposure.

That feedback loop can help explain some short-term moves in Tesla stock. On Wednesday, the five most active call option contracts traded about 533,000 contracts, according to Nasdaq. The five most active put options contrast traded about 251,000 contracts. The put-to-call ratio was o.47. A typical put-to-call ratio is a little less than one.

A ratio below 0.5 can also mean more stock buying to hedge call option sales than stock selling to hedge put option sales. More buying than selling pushes the price of anything higher -- including Tesla stock.

Over time, stock prices, of course, reflect earnings and growth. Over the short term, stock option activity can play a role in stock moves. Whatever the exact reason Tesla stock has risen so much, so quickly, the process is something to behold.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 15, 2025 04:57 ET (08:57 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.