Looking for a trade on Tesla (TSLA)? Here’s my take. (August 17, 2018)


I want to look at Tesla ( NASDAQ: TSLA ) today. You should know what the issue is with the company, kind of meltdown CEO and all that. All right fine, I am not going to editorialize on all that, I am talking about trading. One thing I mentioned on Twitter was I had shorted the stock and I am still short the stock by puts; I have a put spread where I bought, I think they were the $310.00 puts, and then I am short the 290.00s or 280.00s. Not a big, massive short but I bet on the downside and so far I am up nicely.

It is not a huge trade, I don’t make huge trades these days and neither should you; if you are, you’re gambling. That’s fine if you want to gamble, embrace the horror, you’re a gambler you’re not a trader you’re a gambler. Fine, there is a nice song written about that and sung by Kenny Rogers. No songs have been written about traders so you’re in “rare air” there.

But if you are a trader, as I am, I traded here betting on the downside move. I don’t feel like this is going to be a happy ending for Tesla ( NASDAQ: TSLA ). The company, for various reasons, the headlines are all basically bad, not too much good. But, with that said, this is my trading note to you: On my tweet I said, “I wish I had more puts or I wish that the puts I had were ‘unhedged’.” And then I said, “But isn’t that the way it always feels when your big profit reverses and gives you a big loss?” What I am talking about is, that when trades are going the BEST that is when there’s a clear division between groups of traders. The one group of traders that makes a lot of money typically and the other group of traders that always seems to be in the right stock, just at the wrong time.

My point is this: When the trade is going really, really good, the retail, the amateur, the new trader is going to look at that and say, “I have got to pile in; this is great! It is doing just what I thought I was going to do bigly. It is going massively short. I am going to build a bigger and bigger and bigger position and then when Tesla gets down to here I am going to make a ton of money.” What you are not thinking about is this: The sharp traders are looking at that and they are going, “Okay, it’s down $30.00. That’s a pretty big move here, I think I am not going to lean on my short. In fact, if anything, I think I will maybe take a little off the table.”

At the same time folks that have been looking at this stock and waiting for an entry, because they do have a business, have been waiting for an entry, they see what happened here. The last time the stock traded at 290.00 and then it ultimately ran up to 380.00, for whatever reason (that’s not my point), it ran up like 90 points. There are going to be a lot of folks who are sitting here and they are waiting for 290.00 and they will be buyers that’s just the way it goes.

In this video what I am trying to emphasize is, you have to expect the expected. Don’t expect the unexpected. If you are expecting this to knife right through this established support line; it is a little sloppy line but three points right here. If you expect the stock to knife right through here and keep on going; that is expecting the unexpected.

On the other hand, if you are expecting the stock to hit this support line or come close to it and then rebound, now you are trading because this is what the stock has been doing before. It is a super volatile stock, there is no question about it, it very well could do this. Don’t be thinking about how much money you can make. Be thinking about how much money you could lose.

I am going to be looking at this very, very carefully on Monday. If, and who knows what is going to happen; I am doing this video on Friday, there could be some kind of negative headline that comes out and Monday morning this stock could gap below $300.00, it could be well below $300.00. I am not going to be looking, then, at increasing my short. I am going to be looking at covering my short and saying, Okay, well thank you very much. May I have another?” I will take that profit because I am expecting the expected.

Now, on the other hand, this stock could very well run up a little bit because there has been no bad news. Traders look at this and say, “Boy, it went down 10 percent, I think that is a little bit overdone.” And look where the stock is in this latest trading box. Here is where it is. It is kind of towards the bottom. Yes, I will go ahead and buy this stock because this is really my potential downside right here.”

Good traders, professional traders are always looking at the risk. The risk of losing the profits that they already have and the risk of taking losses that they don’t yet have. Amateur traders look at how much money they are going to make when the stock does exactly what you think it is going to do. Stocks don’t do that. Amateur traders also see a stock making an extreme move and they think that move is just going to keep going and keep going and keep going, and they’ve got to get in on that. That didn’t work well for the traders in the movie Trading Places when the Duke brothers were trying to corner the frozen concentrated orange juice market; that didn’t work too well. And it is probably now going to work for you either.

I am short Tesla ( NASDAQ: TSLA ), no question about it, no apologies for it. But I am not looking for too much this next week I am managing my risk. If the stock does start to move up a bit, I may cover my short and say, “Alright, thanks so much, it wasn’t a big trade, it was a profitable trade though.” But I am not going to ask for more of the stock than the stock is able to give me. Just remember, on these volatile stocks like this, there are buyers out there and there are sellers out there; they are just all hiding. But when they come in they come in fast and they come hard. They can take your money away from you. So right when you are the most confident is actually the time when you are typically the most vulnerable as well.

So you should be concerned if you are in this stock, irrespective of long, short, it doesn’t matter you should be concerned. You can’t have confidence either in the long trade or the short trade. The only sure thing in this stock is that it is going to continue to remain very, very volatile. You have got to trade the volatility, it’s pretty easy, sell high, buy low, try to get the in-betweens; that is all I am doing.

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