Tesla investors are paying close to the highest premium on record to hedge against a 10% decline in the company's stock.
- Tesla's stock has been remarkably resilient in recent days even as negative headwinds continue to pile up.
- Still, traders are paying close to the highest premium on record to protect against a big drop in the company's stock, indicating that worries linger under the surface.
- Follow Tesla's stock price here.
Based on how Tesla's stock has reacted to the past week's events, one might think it's downright invincible at this point.
Take Tuesday's price action for instance. Following an announcement that the company would temporarily suspend its Model 3 assembly line, Tesla's stock actually rose as much as 0.3% intraday before finishing the day 1.2% lower.
Considering Tesla has drawn the ire of investors by repeatedly moving the goalposts for production estimates — which they've also missed on multiple occasions — the gain shows traders are still more than willing to take Musk's word for it, further reinforcing the company's air of invincibility.
But one statistic suggests Tesla investors are actually bracing for the worst. In fact, they're more worried than they've ever been.
As the chart below shows, traders are paying close to the highest premium on record to protect against a 10% decline in Tesla's stock over the next month, relative to wagers on a 10% gain. The measure — known as skew — hit a peak in early April and has stayed elevated ever since.
Despite the resilience of Tesla's stock in recent days, it's not altogether surprising that traders are paying up for downside protection when you consider the many headwinds that have rocked the company in recent months.
Those hurdles include an an ongoing government investigation into a fatal Model X crash in California and a downgrade from Moody's. More recently, a report from the Center for Investigative Reporting out Monday said Tesla deliberately concealed serious injuries from public reports to boost its safety statistics.
And while those issues combined to drag Tesla shares down 16% over a series of weeks, 71% of Wall Street analysts covering the company still have either a "buy" or "neutral" rating on the stock. This once again reaffirms the idea that despite its myriad woes, Tesla can do no wrong in the eyes of many.
One last caveat that must be mentioned is the propensity for investors to short large technology companies as a proxy for a broader market hedge. Tesla in particular is a lightning rod for this strategy, due to the outsized returns generated by shorting it, according to financial analytics firm S3 Partners.
At this point, it's anyone's guess what the next month will hold for Tesla. But regardless of what happeans, if things end up going awry for the heavily scrutinzed company, traders seem ready for it.