The news: Tesla has had a trifecta of bad news that has put it on everyone’s front page for the last week. It started when chief executive Elon Musk said late Sunday that the number of cars the company delivered was below Wall Street’s second-quarter estimate, worsened on reports of new big-name rivals including Volvo, and reached a new fever yesterday when Tesla was left off a key list of the safest cars.
At one point Thursday, the stock was off 20 percent from the record high of $383.45 it hit on June 23.
The market’s expectation: Tesla has lost about $7.2 billion in market cap over the last two days – losing its status as the nation’s most valuable auto-maker – and it won’t recover quickly.
My expectation: I think it can make a dead-cat bounce from this level. The company has a huge following of people who love the stock and they’re looking to buy dips. If it does not make a new low today, it’s a great buying opportunity.
What I did about it: I had a big short position in Tesla, which I closed on Thursday. In my experience, it has rarely worked when I get out of a short position and right back into a long one, so I am going slowly here. I bought some Tesla $320 calls for next week at an average of $6 on Thursday.
My strategy from this point: If today’s low holds, I will hit the gas and buy more short-term options, thinking I they can hit the $10 to $15 range, meaning I’m looking for a minimum gain of 40 percent gain.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs. At the time this article was published on RagingBull.com, he had the open options positions in TSLA that were purchased Thursday, and was planning to trade them in accordance with this commentary.