Tesla and SolarCity show interesting Greeks

February 25, 2014 10:34 AM

Spread Between TSLA, SCTY Implied Volatility Narrows

While Tesla Motors continues to wow the crowd with speculation on its so-called ‘gigafactory’ for the mass production of batteries, take a look at what’s happening with SolarCity. The company, of which Tesla founder Elon Musk is Chairman, is ramping up once more on hopes it will be dragged to center stage when the li-on battery buzz gets underway. Typically the pair is highly correlated directionally, but what you will notice in the chart below is the counter movement on implied volatility across the pair. While investors continue to move the goals ever higher for Tesla Motors as valuation fantasies morph into an entirely futuristic business model, uncertainty surrounding the future direction of the share price has jumped. Implied volatility is up to 55% Tuesday.

Chart – The spread between Tesla Motors and SolarCity implied volatilities is narrowing



Meanwhile, shares in SolarCity are higher on the session by 4.6% to $82.09, earlier touching a new record high of $83.79. And as options activity is also fuelled by speculation of a brave new order, implied volatility on the issue is markedly lower on the day. That does of course leave it higher – at 74% - than on that of Tesla. But one wonders whether savvy volatility traders are starting to signal that the level of future deviation on shares in SolarCity only warrants the same reading as Tesla.

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.