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 free access to for the near future. Yesterday I nailed the intra-day selloff in TSLA.

Here are the highlights as I walked chat room members through the trade:

Oct 27, 10:46 am

Jeff Bishop (Moderator): agree on TSLA puts, worth the risk here and stop out at TSLA > $1070. I am staring on the $1100 puts that expire this week.

Oct 27, 11:34 am

Jeff Bishop (Moderator): TSLA puts working, and looking to add to them

Oct 27, 12:39 PM

Jeff Bishop (Moderator): sold half of TSLA puts in mid $1040s

Oct 27, 1:22 PM

Jeff Bishop (Moderator): maybe I am wussing out, but I am taking the rest of TSLA puts off the table here

Now let me explain the reasoning behind the trade.

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

Fundamentals

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 Wednesday.

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. In just 2 days, TSLA was up almost 20%, and I understood that this price movement was unsustainable.

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.

As it turned out, TSLA topped out at $1094.94 and sold off all the way to 1001.94. This type of move is known as a blow-off top, and it’s no coincidence we traded all the way down to $1000, where there was enormous open interest in the $1000 puts.

So coming into Wednesday, 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.

Understanding that market makers were likely to protect the $1100 price level as they had done on Tuesday, I was watching TSLA for a good short opportunity as it had such a huge run-up already. I was waiting patiently for a trade setup to form before pulling the trigger.

Technicals

At around 10 am, TSLA had failed at the 1065 level and sold off to 1040. Thus I was looking to take a short as close to 1065 as possible for a move back below 1050. At 10:46 am, as TSLA approached 1060, I started buying the 1100 puts expiring on Friday. I planned to stop out at any significant hold above 1070. TSLA made a false breakout above 1065, failed at 1070, and made a move back down to 1030, the previous low of days. I exited half my position as TSLA sold off to the 1045 area, and when it started to consolidate there, I swiftly sold the rest of it.

Although the trade setup itself was pretty simple, I had been watching TSLA for days gathering information and preparing for my trade.

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 following the smart money market makers.

Once I understood where they were positioned via the options chain and open interest, I was ready to make an intraday short trade against the highs. The trade worked perfectly. The trade was called out live in front of subscribers to the Walls Street Octagon.