Here’s how we make money on Tesla (TSLA) (August 23, 2017)
Let’s look at Tesla ( NASDAQ:TSLA ). I don’t trade Tesla ( NASDAQ:TSLA ) much, I know some people do. Some of you guys are ‘Teslonians’, I am just not one of them. But I do own some calls on this now, and I will tell you exactly why.
First of all, it is in an uptrend. Fine. But calls are expensive; high implied volatility. You can kind of get over that by buying enough time that will allow your idea to unfold, so to speak. The implied volatility, meaning the price of the options can be really high, but that high price only relates to the out of the money part. That part of the option price that is timed. In other words, a $350.00 call would be $2.77 in the money. Anything above this $2.77, on the price of the option, is all time. And that is all subject to implied volatility, which is a direct result of how much buying pressure is there, how many people want to buy calls, and how much are they willing to pay up? Versus who wants to sell, so it is kind of like Options 1A.
As I look at Tesla ( NASDAQ:TSLA ) though, I see a couple news items about Apple ( NASDAQ:AAPL ) not doing whatever everybody pretty much knew what they weren’t going to do anyway and a few other things. But I don’t really see anything particularly noteworthy to prompt this stock to be up over 3 percent. What I do see is a pattern. The 100-day moving average, 2, 3, 4 times this has tested this area and it continues to move higher.
Then if we look at the weekly chart we can see, the stock has formed a base for about 3 years it seems like, just a little over 3 years. Then it is finally breaking higher to where on this chart, the weekly chart, $300.00 is support. Any pullback to $300.00, unless it is the end of the bubble, and ultimately this bubble will burst, but it may burst from $1000.00. Who am I to say? But, if the stock does pull back to $300.00 I think you are going to get a whole bunch of buyers swooping in to take advantage of that. It is known as the ‘second bite at the apple’ trade. But I am not thinking about that now.
What I am thinking about is this: I am thinking about a lower high, but I am thinking about a bunch of higher lows. And I am thinking about at stock, that if it breaks out of here it can go to 400.00 fairly easily. So now we look back at the daily chart, let’s look at the same thing here. Look at this right here, you start taking a position when the stock is first showing you that it is rebounding off of support. And then you add to that position when the stock starts breaking higher. So I like my calls. I will probably get a head start on it.
If the stock starts moving above say, 360.00, then I will add to that position. And at the same time I will raise the stop on the current position that I have, I will raise that higher so that the risk on the position that I have now, this initial position, I will raise that higher. So the risk on that position is actually pretty minimal. The idea is, you take a position, if it starts working in your favor, you kind of want the stock to move to where you can ratchet down your risk. Where, now you have got an entry price, and you have got a stop level, and your risk is the distance between the two. As the stock starts moving higher that stop that you have gradually moves up to your entry level, then ideally above it.
What we are wanting to do is, first thing, we have got to have room with the stock, but we want to get the stop up to where our worst case scenario on that aspect of the trade is break even; now we have got a free ride. Then we start all over again with a second position, with a stop, maybe that is where the original stop is now. But gradually you just kind of ratchet up, just kind of crank it up from one to the next. All the while increasing your profit exposure while maintaining your risk exposure the same, so that you wind up having a really good trade, as long as the stock the stock continues to work. So, am I predicting that Tesla ( NASDAQ:TSLA ) is going to move to 400.00? No, I am not. But I will tell you this, I am positioning myself so that if it does I am going to make gang of money. So anyway, that is Tesla ( NASDAQ:TSLA ). Check it out.
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