Some nimble traders in Tesla Inc`s options made massive paper profits on Tuesday, while short-sellers were hit with about $1.3 billion in paper losses after Tesla Chief Executive Elon Musk tweeted he was considering taking the company private at $420 a share.

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Musk has been under pressure to prove he can deliver on his promise to turn his money-losing company into a profitable higher-volume manufacturer of electric vehicles. Tesla shares rose as much as 13 percent before ending the day up 11 percent.

The tweet spurred a rush of trading in Tesla`s options, driving volume to 500,000 contracts, more than twice the daily average, according to options analytics firm Trade Alert.

Call options, which convey the right to buy shares at a fixed price in the future, were particularly busy and logged significant price gains on the day.

One block of 714 Tesla call options, betting on the shares rising above $365 by the end of the week, were bought for 85 cents, for a total outlay of $60,690. Just hours later they were worth $1.3 million on paper.

Other near-dated bullish contracts also registered sharp gains.

The contracts were bought minutes after the Financial Times, citing unnamed people with direct knowledge of the matter, reported Saudi Arabia`s sovereign wealth fund has built a significant stake in Tesla.

GRAPHIC: Windfall gains for Tesla options - https://reut.rs/2MaobvLThe rally after Musk`s tweet unleashed fresh pain for short-sellers in Tesla, the most shorted U.S. stock, according to financial technology and analytics firm S3 Partners.

Short-sellers, who had been saddled with sharp losses earlier this month after Tesla shares soared following quarterly results, suffered paper losses of about $1.3 billion and were now $3.03 billion in the red for the year, according to S3.

"Tesla`s volatility makes it more of a trading stock than a value play," said Ihor Dusaniwsky, head of research at S3 in New York.

"Both longs and shorts are susceptible to wild price moves which can easily swing a trader’s book from profit to loss in a single day, which may be the reason they are in the name in the first place," he said.

If the share price rises to the buyout price of $420 and the number of shares sold short does not change, year-to-date paper losses could swell to $4.45 billion, according to S3.

That could lead to a short squeeze - where bearish traders are forced to buy shares to avoid big losses, pushing the stock higher - Dusaniwsky said.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)