Tesla (NASDAQ:TSLA) Technicals say, “Short Every Rally!”
Shares of Tesla (NASDAQ:TSLA) have been under heavy pressure since mid-August.
After trading to all-time highs on 7 August at the 380 mark, TSLA has been hammered by about 20%, closing 300.99 Tuesday. While many times the sell-offs are viewed as buying opportunities, the recent behavior of both CEO Elon Musk and the shares point to even lower prices for Tesla stock in the weeks ahead.
The crazy rally towards new highs in early August was predicated on the now infamous funding secured, going private at ‘420’ Tweet by CEO Elon Musk.
The severe response by the market was seen on the quick realization there was no funding from the Saudi’s PIF or anyone else.
Subsequent fateful news the Department of Justice (DOJ) and Securities Exchange Commission (SEC) opened probes for potential criminal and ethics violations surrounding the Tweet that added fuel to the selling.
The problems for Tesla do not end with the SEC/DOJ investigation. Most of us are familiar with the fact that CEO Elon Musk smoked marijuana on The Joe Rogan Show. This shocking lapse in judgement came shortly after telling the New York Times he thought marijuana hurt productivity while sobbing.
Just as important and maybe more so, the marijuana smoking incident may have violated Federal Acquisition Regulation policies that may substantially affect the Air Force contracts with SpaceX thus giving President Trump a reason to terminate him and SpaceX, another company run by Mr. Musk. This would be yet another black eye for Elon Musk and negatively affect Tesla by association.
The bad news as seen in the technicals
TSLA stock is having extreme difficulty moving past the psych resistance at 300. The 50, 100 and 200-Day MAs have all converged near the 312 mark which will likely provide strong Northside headwinds.
Money flow continues to dry up too. Because, once the faith is broken with the participants for a momentum stocks like Tesla it is tough to get it back.
Implied volatility (IV) in TSLA options is at the 79th percentile, meaning option prices are comparatively expensive. This favors option selling strategies when traders construct trades.
So, to position to be a seller of Tesla stock on any meaningful rally, a Bearish call credit spread makes the most sense to me.
- Buy TSLA Oct 345 calls and sell TSLA Oct 340 calls for an 80c net credit.
- Maximum gain on the trade is 80 per spread with maximum risk of 420 per spread. Return on risk is 19.05%. The short 340 strike price provides a 13.5% upside cushion to the 299.68 closing price of Tesla stock.
Tesla is no longer an investment, it is a speculation, meaning leave it to the professionals
HeffX-LTN’s overall outlook for Tesla is Bearish to Very Bearish