The bulls and bears are at war, and it’s volatile out there. And it’s not getting any easier for either side with confusion on what to expect, especially the FAANG’s. GOOGLE and AMAZON, and APPLE blew out earnings expectations, while NETFLIX and FACEBOOK got the Kibosh! 

I’ve talked about how I’m trading the market bounce in QQQ’s here, and I’ve found a similar pattern in Tesla (TSLA). After reporting some great numbers, TSLA sold off and has since been in a holding pattern with the market. It looks like bulls and bears are at an impasse, and at least for the moment, TSLA has been trading sideways. I expect this sideways action to continue in the short term, which is why I’m putting on an Iron Condor.

Fundamentals

Electric-vehicle maker Tesla Inc. set a record for profit but warned of supply chain problems in its Q4 corporate earnings report. 

Tesla reported fourth-quarter revenue of $17.7 billion, up 65% year-over-year. The totally beat the consensus estimate of $16.4 billion,

Tesla reported fourth-quarter earnings per share of $2.54, beating analyst estimates of $2.26 per share.

The company produced 305,840 vehicles in the fourth quarter, up 70% year-over-year. The majority (292,731) of the vehicles produced were the Tesla 3 and Tesla Y.

These were impressive beats and in a stronger market environment, could have sent TSLA roaring much higher. However, it looks like a lot of TSLA’s growth has already been priced in, and since the earnings report, TSLA sold off with the market. It appears that investors are skeptical of Elon Musk’s claims about Full Self Driving where he stated “I’m completely confident at this point that it will be achieved, and my personal guess is that we will achieve full self-driving this year.”

The market also had no response to TSLA’s AI robot where Elon said “This, I think, has the potential to be more significant than the vehicle business over time …

This is not the type of market environment where future growth claims are being rewarded. Growth stocks have been getting smoked.

Technicals

Looking at TSLA the buyers stepped in but the sellers are right here near the pivot highs.

I’m thinking that the sellers are going to force the bulls to slow their run to the upside and force TSLA to stay in this trading range.

My Trade : 

Short Iron Condor +820p/-830p/-1050c/+1060c @ $3.40 – current price $3.26 expiring Feb 18

Note: As we start to rapidly approach expiration, the theta decay will start to kick into overdrive and the value of the Iron Condor will rapidly accelerate towards $0 if we stay in this range.

Trading Lesson – Iron Condors:

Iron Condors are used for two primary purposes; to take advantage of a range-bound stock and to trade high levels of Implied Volatility (IV) in expectation of a drop in IV in the future.

What does an Iron Condor look like?

There are 4 main areas to be concerned with when trading Iron Condors:

• As a stock stays range-bound between the short put and short call strikes, you will receive a max profit on the trade.  
• If the stock starts the fall outside of those zones, you will see slightly lower profits up until the break-even point.  
• If the stock is above or below the long put and call price, you will receive a max loss on this trade
• If the stock is beyond the break-even point and the long put or call price, you will receive a slightly less loss on this trade

Bottom Line

After a huge down move in the market, there is a real tug-of-war taking place between the Bulls and Bears. I expect this to continue in the short term. I see the same pattern in TSLA. The bulls have defended the $800 level, and I expect that to hold. 

However, TSLA has been weak and sideways since earnings, and I doubt that it can trade much higher over $1000 for a significant period over the next few weeks. I have thus put on an Iron Condor trade which will work if TSLA continues to trade sideways above $830 and below $1050.