Tesla shares rose by 3% in after-hours trading after the company reported better-than-expected earnings. Tesla showed an adjusted earnings per share of $0.50 and revenue of $24.9 billion, exceeding estimates by $140 million, even though revenue fell by 3% from the previous year. Revenue from the automotive division dropped by 11% year-over-year, while the energy sector grew by 25%. Tesla’s operating margin decreased by 50 basis points to 5.7% due to an 11% drop in operating income, which was influenced by a 39% increase in operating expenses. In the fourth quarter of 2025, Tesla reported free cash flow of $1.42 billion, a decline from $3.99 billion the year before. On the progress of the Optimus humanoid robot, Tesla announced plans to reveal the Optimus Gen 3 in the first quarter. This Gen 3 model will feature significant upgrades and is the first designed for mass production, aiming to produce 1 million robots per year before the end of 2026. While the share price increase is appealing, there’s a classic case of optimism overshadowing the current weak performance. With the earnings event behind us, we expect the high volatility seen before the report to drop significantly. This “volatility crush” will lower the prices of newly bought long options, hurting those who purchased them at peak prices yesterday. Traders bullish on the Optimus narrative might want to buy call options with expirations after the planned Q1 unveiling. In the past, similar events like AI Day events in the early 2020s have created a buildup of excitement, driving prices up. Buying call options now, after the initial volatility crush, could be a smart move ahead of the Gen 3 reveal. On the flip side, the fundamentals present a bearish outlook. The 11% decline in automotive revenue comes as overall EV sales growth slowed to just 25% in 2025, according to IEA data. With the stock trading at over 55 times its forward earnings, some traders might see this as a chance to buy put options, betting that the weak cash flow and lower margins will eventually overshadow the hype surrounding the robot. The struggle between the weak auto business and the Optimus story creates significant uncertainty. Current options pricing suggests a possible 12% movement in the stock over the next month, making strategies like long straddles appealing for those who expect a big swing. Alternatively, traders who think the stock will stay within a certain range as the market absorbs this news might consider selling iron condors to profit from the still-high volatility.

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