NEW YORK (Reuters) - 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: reut.rs/2MaobvL)

The 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.

(GRAPHIC-Market value of Tesla, Ford, GM : tmsnrt.rs/2n4mFjh)

(GRAPHIC-Tesla shares jump 10 percent, near record high: tmsnrt.rs/2MbzJin)