Tesla is up nicely today, right? I think I’m gonna make money on a trade that went bad. (February 11, 2016)
TSLA
I want to look at Tesla ( NASDAQ:TSLA ) in this video, and here’s why: Big massive volume today. The company was supposed to make money; it turns out they lost a gang of money. But Elon Musk had NOTHING but great things to say about how they’re going to be delivering a new car on such and such a date; they’re taking signups at the end of March and, “Oh my gosh! The future is so bright,” you’ve got to wear electric-powered welding goggles, which sounded really good. We got a big short covering rally, I would say, after market, and then the stock does what it does today. Why am I going over this? Here’s why: I knew this was kind of like the countertrend move, but I’ve been watching Tesla ( NASDAQ:TSLA ) and I get it, I see what’s been happening. They’ve been hemorrhaging money and this and that. I really thought that when they reported earnings there may be one last gasp to the downside. Like one last big sell-off, and there’s your buying opportunity. So yesterday, before the close, it was literally kind of a lottery ticket deal, I bought a bear put debit spread. March, I wanted to go out a little bit, I bought the March 140.00 puts and I sold the March 130.00 puts, so I sell the puts, here they’re cheaper but they helped me finance the 140.00. So basically I got a discount on the $140.00 puts by selling the $130.00 puts.
So then Tesla ( NASDAQ:TSLA ) reports the stock actually traded down a lot initially after hours and then ultimately it does what it does. So I was looking at this going, “You know what? I’m going to lose that.” By the way, when you’re doing lottery ticket trades, this is what you need to keep in mind, because I do, you can lose it all. Don’t open up a position bigger than if you had a total disaster on the position, you would still be okay. So I was looking at this and the debit that I incurred in creating this spread. Dollar wise I looked at it and I’m going like, “Well, I’m hoping to make money, I’m thinking I’m going to make money, it’s why I’m doing the trade, but I might not. And if I don’t am I going to be okay taking a 100 percent loss on this trade? And if I’m not okay then I need to either not make the trade or cut down the size.” So I had the size cut to where it’s not a big deal for me. It’s a bummer, but I didn’t lose any sleep over it; I lost sleep for other reasons. So the stock gaps up and it trades WAY up here to above 163.00.
Now yesterday, after hours, it actually traded up to 165.00. So the stock trades clear up here, and while it was trading up I’m going like, “Okay, those puts that I bought, I’m losing money on those. But the puts that I sold, the 130.00s, I’m making REAL good money on those.” So I waited for the stock to go up, certainly higher than it was here. Then I went ahead and bought back those puts that I had sold for a really, really nice profit. But I was still WAY under water on the 140.00 puts that I was long. I’m still long those and frankly, I think that I am actually going to make money on them. It was a throw away trade, I made money on this leg, but this I’ve lost more money on this than I made here, so it’s an unprofitable trade; but it’s within the parameters, within the parameters that I set for myself. So now I’m long a bunch of $140.00 puts, out of the money, whereas yesterday they seemed almost more at the money. They’re out of the money but the way this stock traded today, lets look at it intraday, a big move in the morning and then just down the rest of the day.
In my view this was a short covering rally, these are not real buyers. How do we know they’re not real buyers? Because if there were real buyers there would have been a bunch of them. Because look how low it’s trading, relative to the 200-day moving average, this is a DEEPLY oversold stock, nobody bought it. “It’s up 4 almost 5 percent Dan.” That’s great, but did I mention it’s a deeply oversold stock? The company lost money last quarter, but Elon Musk had NOTHING but rosy things to say. The stock traded up, NO follow through. So here’s my bet: My bet is, over the next few days, or week, they basically give all of this stuff back. Maybe not because of aggressive selling, but I think just because of a lack of buying. You look at the overall market, there’s not a lot of appetite for stocks. And what Tesla ( NASDAQ:TSLA ) has shown is, at least to me right now, there’s certainly not a lot of appetite for Tesla ( NASDAQ:TSLA ). I hope this video helps you understand at least how I look at stocks and how to maybe, when you’ve got a trade that you’re upside down on it, you don’t just have to close it out if it’s an option trade. If it’s a spread you can make adjustments and then at the end of the day probably even wind up making money.
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