Trade Alert - (TSLA) December 27, 2022 - STOP LOSS

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

 

(TSLA) – STOP LOSS

SELL the Tesla (TSLA) January 2023 $100-$110 in-the-money vertical bull call spread at $6.70 or best

Closing Trade: NOT FOR NEW SUBSCRIBERS

12-27-2022

expiration date: January 20, 2023

Portfolio weighting: 20% double weighting

Number of Contracts = 25 contracts

This is the first stop loss I have suffered since the summer and one of only five in all of 2022.

This is a classic example of markets being irrational longer than you have liquidity. In a mere six trading days the shares of the fastest-growing major company in the markets have plunged by 28% in six trading days and an incredible 74% in a year.

We are probably very close to an extreme oversold reversal, but I am going to stick to my rigid stop loss discipline to limit losses. It’s easier to dig yourself out of a small hole than a big one. In any case, the loss on this trade was offset by profits in my short positions in the (SPY) and the (QQQ).

Therefore, I am selling the Tesla (TSLA) January 2023 $100-$110 in-the-money vertical bull call spread at $6.70 or best.

DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.

Simply enter your limit order, wait five minutes, and if you don’t get done cancel your order and lower your offer by 10 cents with a second order.

Tesla shares have plunged this year because Elon Musk sold an additional $3.6 billion worth of shares this month, bringing his total for the year to a mind-numbing $40 billion, according to SEC filings. Although he has promised not to sell anymore for two years, nobody believes him.

But you know what? Elon can’t sell any more stock after Friday, December 16. After that, the window closes until after January 25, when Tesla Q4 earnings are announced, conveniently five days after this position expires on January 20.

After my ballistic 87.9% profit in 2022, I am in a mood to start out 2023 with a bang, and this is the best trade I can think of to do that.

An onslaught of new Tesla positives will hit the market in 2023. The new Cybertruck comes out and there is a two-year waiting list out the gate and deposits in hand for 100,000 vehicles.

The company is generating such enormous cash flows that it is like to carry out $10 billion in share buybacks, especially with the Price this low. There are no real competitors on the horizon, except for a handful with minimal production at big losses outside of China.

All the new negatives are now in the price, the China lockdowns, the product recalls, the Shanghai shutdown, recession fears, and even Elon Musk himself going from a premium to a discount, are now in the price. At the end of the day, Tesla really is a consumer discretionary stock.

With this trade I am willing to bet that Tesla shares will not fall an additional 29% in 23 trading days with Elon Musk out of the market. I am also betting that a company that is growing sales at 50% year and earnings expanding at an incredible 40% a year will see its share price fall only 74% from its all-time high at $424 a year ago, which seems reasonable.

That brings Tesla’s valuation in line with the S&P 500 at 200% of annual sales. At a price earnings premium of 27X, and 19X 2023 earnings it is almost bang in line with the main market prices.

You will never see this again.

Twitter will remain a distraction, but only so much of a distraction. A now $10 billion company can only drag down a former $365 billion company so much. Elon Musk has been chastised severely. Soon he will appoint a new Twitter CEO who knows the social media industry cold and the distraction will go away.

I have known Elon for 25 years, back when he was asking ME for money, and when he realizes he has made a mistake, he pivots fast, faster than any other Fortune 500 CEO.

Tesla will remain the top EV maker for the next decade easily.

To make this trade really perfect, I would love to see the Volatility Index (VIX) well above the current $23.17. But Tesla implied volatility is already trading at a sky high 65.54%, triple the market volatility. But you have to strike while the iron is hot. Tesla trades in its own world anyway.

This was a bet that Tesla (TSLA) will not trade below $110 by the January 20 option expiration day in 23 trading days.

Here are the specific trades you need to close out this position:

Sell 25 January 2023 (TSLA) $100 calls at…….................….…$19.00

Buy to cover short 25 January 2023 (TSLA) $110 calls at…….$12.30

Net Proceeds:………………………….………..........................………$6.70

Loss: $6.70 - $8.70 = -2.00

(25 X 100 X $2.00) = -$5,000 in 6 trading days.

 

 

 

If you are uncertain about how to execute an options spread, please watch my training video by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.