Here’s a simple trade trick for Tesla (TSLA) traders. (January 23, 2019)TSLA
Tesla ( NASDAQ: TSLA ); how are we going to make money with this pig? First of all, this chart tells you all you need to know. And that is, this is like putting a saddle on the largest anaconda in the world and trying to ride that thing. This goes all over the place and it goes big and fast; that’s the way this stock is.
I will tell you exactly why it does that. Not because of Elon Musk. Not because it is an electric car or any of that stuff. Sure that’s the story, you don’t need to hear that from me. It does it because it has got such a short interest; I hope I don’t trigger anybody here; it’s a little bit like Trump. Elon Musk is a little bit like Trump.
There are, what I call, the “Muskonians”, the “Musketeers” who think that Elon Musk is the most brilliant guy in the world and everything he touches turns to gold and if it hasn’t turned to gold yet it is going to real soon because this guy is an absolute genius. There are even like sound analysts who will say about a third of Tesla’s ( NASDAQ: TSLA ) stock is the “Musk” premium.
Then there is the other side of the coin, people that think Elon Musk is a complete idiot, he’s a charlatan, he’s going to be found out, he makes Ponzi look honest, etcetera, etcetera, etcetera. There are a bunch of those people too. Again, it is kind of like Trump, there is so much emotion one way or another, listen to me because I am giving you pearls, there is so much emotion one way or another that logic is thrown out the window by both bulls and bears alike.
I have seen the bears, I know the arguments, I know the bearish arguments, I know them cold. They are actually obvious, very obvious. This stock is hated; the short interest is so high and it is because the story is so clear, that this stock needs to be maybe $50.00, $60.00, something like that. This stock needs to absolutely get crushed. Then the bulls say, “No, the future is so bright you have got to wear shades, Ready Player One.” It is just like the stock is going to go to the moon; people don’t understand we’re changing the world, etcetera, etcetera.
So here’s what happens with the stock: Bad news, you are not really going to get that much selling by the “Musketeers”, by the “Teslonians”. The bulls, seriously, think about it, with this kind of chart if they haven’t sold somewhere through here, as the stock has oscillated from 380.00 down to 250.00, they aren’t selling now.
So you get bad news, some sell, of course, others lean on the stock and short it, because okay, now is the time it is going to go to zero. That goes only so far and then the stock starts moving up a little bit and those shorts, they’re short because they don’t like Elon Musk and they think EV, blah, blah, blah and all that, they’re short or they just see the numbers and they say, “No, I’m staying in for the long haul. I am going to be short this stock.” What they are really doing is insisting on being right not on making money; by God, they’re going to be right on this. The problem is they don’t all have the same level of conviction.
So even though all the Tesla ( NASDAQ: TSLA ) bears are pounding the table saying this stock needs to go to zero, some of them are liquidating their short positions, maybe a little bit. Maybe they sold up here at 300.00 or 310.00 or something. So even though they know it is going to go down at least to 250.00 and they are tweeting about it and all that, they say, “Well, maybe I am a little bit too short, I think I will go ahead and take this off.” And so the stock starts moving up and then what happens? All the “Teslonians” who don’t own enough stock or they want to own the stock and they are waiting and they’re scared, they start buying.
The issue is, that this stock, on bad news, will go down a little bit and then snap back because buyers come in and shorts cover. Then good news comes out, the stock goes up a little bit. Why? Because shorts are covering then too and buyers are coming in. The stock then breaks out. What’s going to happen? It is going to snap back down because the shorts sell and the buyers, the bulls, are afraid they are going to lose their dough so they sell too. The bottom line is it doesn’t matter what the new flow is this stock goes up. And you can say, “Well, how can you say that Dan, it’s down for 3-days in a row?” Fine, but how are you going to trade that? Again, we are talking about making money here not being right. How are you going to trade this?
I will tell you what I did; I think I mentioned this but maybe not on the Free Chart Video. Last Friday when the stock started trading like this, it was on some news, cutting the workforce, etcetera, I am not going to get into that. But I thought I think this stock has move downside and so I bought a bear put spread. I could short the stock if I wanted to go get a borrow but I don’t have that much conviction. I don’t care about this it’s a chart. But I looked at this and I thought it could have some more downside so I bought some puts. I’m pretty sure I bought the 300.00s but it might have been the 310.00s and I sold the 280.00s. And I thought, that gives me a hedge and if the stock continues to fall I will do it.
And then as we got right close to the end of the day on Friday I thought, wait a minute, I know Musk, he sees this too. That guy focuses on the stock more than Donald Trump focuses on Fox News and so he’s going to have some kind of tweet, some kind of Tesla time tunnel over the 3-day weekend, something is going to happen, I could get crushed on this even though it is hedged. So what did I do? I bought an equivalent number of shares to even out my delta. The way that works is, the delta on a spread is, say I have a delta of 70 or .7 wherever you want to put the decimal, it means that for every dollar that the stock moves down (it would be a negative delta here), but every dollar that the stock moves down your spread trade makes 70 cents.
Then, of course, the reverse is also true. For each dollar that the stock moves up your spread, if you just have one contract, loses 70 cents. And so I balanced that out so I didn’t have to worry about it. And then I figured that I would take care of it on Tuesday, which I did. I am out of the trade now; I don’t have that much conviction. But I want to show you something. I want to show you why I did what I did and how you can actually make money on this stock a lot.
Here is a 5-minute chart. You know it’s under distribution, right? The stock gaps down, within the first 15-minutes of trading it finds a floor, see the most volume here, it finds a floor, does a reverse candlestick here, open bar; 15-minutes in here it is and within how long? About an hour and a half the stock is up almost 2 percent. It doesn’t seem like a lot but if you are trading options that can be a pretty good gain.
All we are looking at on day trading is if you get 1, 2, 3 percent you’re good. You make that trade and you’re out. You can even be looking at this on a 1-minute chart. Remember, we are talking about the stock gapped down. You have to wait for it and wait for it and wait for it and then once it turns, you look at your clock, 9:45, you’re in. The prior day, what happened? The same exact thing. Here though, the stock gapped up. Remember what I was talking about, how the stock is up, shorts will sell some more; actually, some of them will cover. Longs will come in. Typically retail and then that will only last so long and then the stock reverses.
So you wait for the first move to be done. The first move is typically, though not always, we will get to the prior day in a second, the first move is typically wrong. Oh, I am going to sell the stock here. Fine, you feel good for about 10-minutes and then the stock reverses the other way. Here, the same thing, Oh, I am going to buy the stock up here. You feel good for about 2-minutes and then the stock snap hooks on you and it’s down 3.5 percent and you get shaken out. So you wait for the first move to run its course, 5, 10, 15-minutes; wait for the chart to tell you.
Now, on the 18th, this is before the 3-day weekend, here the stock gapped down on that news and then it just kept going. So this is why not every day gives you the same pattern. The point is, if you just wait, if you wait 15-minutes, see what the stock is doing. Here it just never really turned around. I am not talking about buying it here an hour after the stock has been open for trading and trading it up $2.00. I am talking about this initial move. Here, what do we get? We get this stock trading down into the close. What do we get 15-minutes in? Boom! The stock is moving the other way.
This is a pattern that you can exploit time and time again on a volatile stock like Tesla ( NASDAQ: TSLA ); it just works. The first move, the first 5, 10, 15-minutes is the emotional move and it is virtually all retail trading. I don’t think there is any institution that is “accumulating” this stock; you will get some institutional buying, but no institution is accumulating this stock. They might be buying it for trades but they are not accumulating the stock. This is a stock that is actually under distribution.
BUT, for the time being, as long as the chart looks like this it is literally not trending. If you think it is trending you must be day trading or something. When it is down here, this is when you are looking to buy this stock. When it is up here, this is when you are looking to liquidate your positions. It is going to trade here forever or until it doesn’t, that’s just the way it is. Use these intraday moves to capitalize on a volatile stock like Tesla ( NASDAQ: TSLA ). But don’t be a bull, don’t be a bear. Don’t love Elon don’t hate him, just look at the chart and try to make money.