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I’ve been jumping into Jason Bond’s Wall Street Octagon to call out my best trading ideas live, which Total Alpha subscribers will have complimentary access to for the near future. On Friday, I traded an opening drive breakout in TSLA. Here is the Live Call made on the open:

Total Alpha members have access to the Wall Street Octagon at no cost through the end of the year as a thank you from me personally. It’s really beneficial to teach and trade like this in a live environment!

 

Now let me explain the reasoning behind the trade.

 

Fundamentals

Last week, TSLA beat on earnings and closed the week strongly, closing on the highs for the week at 909.68 and making new all-time highs. Below are the reported earnings:

  • Earnings per share (adjusted): $1.86 vs $1.59 expected per Refinitiv

  • Revenue: $13.76 billion vs $13.63 billion expected per Refinitiv

 

On Monday, there was a news catalyst, which sent the stock even higher, leading to a gap up of over 3% to open at 950.53. The news was an order from Hertz for 100,000 EV’s from TSLA representing the single-largest purchase ever for electric vehicles representing $4.2 billion of revenue for TSLA.

 

It was also announced that Tom Brady would showcase the TSLA vehicles in new Hertz ads. Furthermore, Morgan Stanley analyst Adam Jonas raised the price target on TSLA to $1,200 from $900.

All of this positive news sent TSLA rocketing through $1000, to close the day at 1024.86. It was what had happened on Tuesday, which really got me prepared to make my trade on Friday.

 

Options Activity

On Tuesday, I noticed huge out-of-the-money call buying, with some very large call orders going off at the $1,100 strike. The usual gamma squeeze momentum play on TSLA was at hand.

 

I follow the smart-money i.e., the market makers selling options, and understood that 1 of 2 things should happen. Either the market makers would protect all those calls they sold at $1,100 expiring on Friday by keeping the price of TSLA below that price, or they would get blown out, and TSLA would continue much higher as they would be forced to hedge the calls they sold by buying stock.

 

So coming into Friday, I understood that market makers would be trying to protect the $1,100 and $1000 levels as they had done on Tuesday. Here is what the options chain looked like:

 

Notice the extreme open interest values at 1100, 1050, and 1000, all important levels for market makers.

 

I understood that market makers were likely to try to protect the $1100 price level where a huge amount of options were sold. I also understood that the huge amount of call buyers at $1100 wanted blood, as they would stand to do very well if TSLA would break out above $1100. Thus I expected a battle to take place and for TSLA to test the $1100 level.

 

Technicals

 

TSLA had made a triple bottom at the $1074 area. Once I saw that level hold, I decided to put on my position. My stop would be a hold below $1073, the lows of the day. And I would add size as appropriate against $1076. We had one more test of the $1074 area, and in just a few minutes, TSLA broke out to the highs. 

 

I took the first piece off at $1086.80 and held the rest for my $1096 exit plan. 

 

P.S. As it turned out, the last 15 minutes of the trading day were very frantic. The 1100 level broke, and there was a nice squeeze as market makers that had sold those calls were forced to hedge their positions by buying stock. TSLA hit a high of 1115 by the end of close. I didn’t participate in this action, but I was able to make a great trade on the open by understanding where the big players were positioned.

 

Bottom Line

I’ve been jumping into Jason Bond’s Wall Street Octagon to call out my best trading Ideas live. Having seen an extreme move in TSLA, I was waiting to make a trade by understanding where the smart money market makers and big money traders were positioned for a Friday Lotto Options Play.

 

Once I understood where they were positioned via the options chain and open interest, I was ready to make an intraday trade based off the technicals. I expected the 1100 level to be tested based on the volume of options traded at that price, it was a pain point for many. The trade worked perfectly and hit my planned exit price. 

 

Author:
Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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3 Comments

  1. If I am reading the option chain correctly, it appears that I would be able to buy one such contract for ~~$1,000?
    . . . . and in the “option chain” chart shown, Volume refers to the number of contracts already filled on that day, and Open Interest refers to the number of contracts offered but not yet filled?
    Thank You — Alan

    1. Hello Alan! To price options, you multiply the premium by 100. So if the option price of a call is $1 the price of one contract is $100. Open interest refers to the number of contracts outstanding, it’s all the contracts open from the previous trading day. Open interest is adjusted to reflect today’s volume on the following day. -The RagingBull team.

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