Day Trade Put on TSLA

Okay, so I was plain in other threads about my bearish leanings, so I was looking for a put entry after the late day bounce we had yesterday that I didn’t think would last. This morning I looked at the bigger stocks to find one that was already relatively weak compared to the market as a whole, and TSLA was the obvious choice. My thinking was that I would trade watching SPY closely, but trade TSLA instead of SPY because if SPY turns down, TSLA would turn down harder. The following are the charts for TSLA and SPY:

Earlier in the day during the first half hour of trading, TSLA reached down several times and broke support from the low of the day yesterday which I saw as a sign of weakness. They had a soft negative divergence with the Chande oscillator. It doesn’t look exactly like a divergence because it doesn’t appear like a higher-high on the price chart. The oscillator is always based on the closing price. But as I was watching it in real time, When the 10:00 candle was a solid green up candle at the high of that candle, it definitely was a full divergence. The Michigan Sentiment was released at 10:00 and caused a market-wide downdraft. Convinced that we would be going down at least for a little, I entered my TSLA put around 10:10. TSLA was trading about 257.06 and my put was 10/20 P230 1.22.

A bit after 1:00pm, it looked like we were forming a positive divergence on both TSLA and SPY so I got out around 1:10pm when TSLA was trading around 252.58. TSLA went down about 1.74% while SPY went down 0.94%, so the TSLA move was just under double the SPY move. I got out for 1.82 for a profit of 49% in about 3 hours.

No, this was not a whole lot of money. As I have explained before, I am doing these quick trades with a very small account, mostly for testing and enjoyment. This time, I only traded one contract for a huge payout of $60. :slight_smile:

P.S. I notice that while I was typing this, TSLA went down further so I could have made more, but I’m satisfied.

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By the way, I guess I should say that this method of picking a weak stock to magnify the movement doesn’t work with all stocks. I like trading SPY the best because there is more volume than you can get anywhere. If you trade a stock that has lower volume, it is more difficult to get good entries and exits and your stops can kill you because of the wide bid-ask spreads on low volume options. Options volume is always a lot lower than stock volume.

Typically when I try to trade market movement using actual company tickers that I think will move better than SPY, I will stick with the mega-cap Magnificent 7 stocks because those typically have a lot more volume than most stocks. Now, I will on occasion trade the options on smaller stocks, but never for quicker day trades or short term trades.

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Okay, so if I am going to trade puts to take advantage of what I see as market weakness then I can trade SPY, but I would probably do better to pick a stock that is showing more weakness than SPY. When I look at recent history from the recent start of the hard drops (basically 1:00pm on 10/12) some high-volume stocks went down more than others. The ranking is as follows:

TSLA -4.9%
NVDA -4.4%
META -4.3%
AMZN -3.0%
GOOG -2.0%
AAPL -1.8%
MSFT -1.6%
SPY -1.2%

So it appears that I picked correctly when I used TSLA. I thought they looked weaker before the downdraft.

I could keep trading TSLA, and I may do that, but I’m not yet completely sure. There are others that look like somewhat better setups. NVDA and META had similarly large declines, but both of these look much stronger over a longer term (about a month). Now it could be that NVDA and META went down more because they went up more (the higher you fly, the harder you fall) and maybe they will keep falling harder if the market goes down, but I think that I would be more likely to try to catch them on the way up if we have another reversal upward. I’m currently thinking that we will set a lower October low before we reverse for a significant upside. That is, unless I’m completely wrong.

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And now it appears that TSLA (and NVDA) is gapping down this morning while the rest of the market gaps up. I still don’t think it would have been a good idea to hold a put over the weekend when you would lose 2-3 days of options premium. These relatively small gaps would not provide the profit to pay for the loss of value.

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While TSLA is overall up today, it looks particularly weak compared to SPY so far today. I might look to enter a put on a good setup, but only if it looks like SPY is going down.

Okay, so TSLA keeps being relatively weak heading into earnings. The following chart shows TSLA from 10/10 to today right next to SPY. In the chart, TSLA goes down by 9.5% while SPY goes down by 1.8% which is less than 1/5 as big a decline. The SPY chart is scaled to show the difference in performance.

I think that I have already missed my entry here for a put, and given how weak TSLA has been performing I don’t think that I would think about a call, and I also wouldn’t do a strangle right before earnings so I’ll just watch what happens after earnings. Traders are obviously pretty pessimistic about this report, but we’ll see. If they have blowout earnings and a surge, I might look for a put entry given how all the other Mag 7 have been doing after good earnings.

Looks like TSLA had the weakest opening of all the Mag 7 this morning. Every one gapped up, while TSLA gapped way down. Even so, I might actually look for a day trade call that is definitely out before the close, but likely nothing on this ticker.

My thinking on TSLA is that I don’t want to be stuck in a call for any length of time because I expect they will be weaker than the rest of the market for some time. I also don’t want to enter a put any time soon because they are so oversold right now. But I might look for a fast call today just to take advantage of the oversold condition, but currently it looks like it just wants to keep going down while the rest of the market is going up. I’m really not seeing any great setups anywhere right now.

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Earning impact. One more down day?

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TSLA’s big gap down was due to earnings, after that they basically traded up and down today along with the larger market. Most of the big players gapped up today, but they all traded basically down all day which TSLA basically followed. TSLA has been trading mostly weaker than the overall market for a while, and I don’t see any reason for this to change. The overall market looks pretty weak right now, so I don’t expect TSLA to go up very much any time soon.

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