The security is flashing low implied volatility (IV) ahead of earnings
The shares of Tesla Inc (NASDAQ:TSLA) scored a record high of $900.40 just yesterday. With support from its 20-day moving average, the electric vehicle giant sports a gigantic 697.4% year-over-year lead. But the fun may be far from over. A historically bullish signal flashing on the charts suggests more records could be in store for TSLA heading into its fourth-quarter earnings report tomorrow.
Specifically, Tesla stock's recent peak comes amid historically low implied volatility (IV), which has been a bullish combination for the equity in the past. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the past five years when TSLA was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower -- as is the case with the security's current SVI of 72.1%, which sits just above the 4th percentile of its 12-month range.
White's data shows that a month after these signals, the security was higher both times, averaging a whopping 32.4% gain for that period. From its current perch, a similar move would put Tesla stock into four-digit territory.
More gains could come from a shift in analyst sentiment, considering of the 21 in coverage, 14 carry a tepid "hold" or worse rating. Plus, the 12-month consensus target price of $553.48 is no less than a 37.4% discount to current levels.
Digging deeper, a short squeeze could push Tesla stock even higher. Short interest rose 34% in the most recent reporting period, and the 60.62 million shares sold short account for a hefty 33.8% of the equity's available float, or over a day's worth of pent-up buying power.
It's a prime time to pursue an options buying strategy, too. The security's Schaeffer's Volatility Scorecard (SVS) sits at a high 97 out of 100, indicating it has tended to exceed option trader's volatility expectations over the past year -- a boon for option buyers.