Tesla saw a big gap down this morning from $518 to $494, followed immediately by a huge spring shortly after open in the first 5 minutes that saw the stock rebound to $509.50 on strong volume. So what's driving this:
#1) Tesla Fanboys (AKA Bulls) - there are a ton of diehard tesla bulls out there, and after the stock rose to $550 earlier this week, anyone that missed the jump was waiting for a great entry. #2) Morgan Stanley's 'Downgrade' - there's no question analysts can move markets, so what's with the timing of this downgrade with earnings just around the corner?? Answer: The ASTOUNDING Number of Naked Puts out there. #3) Tesla Haters (AKA Bears) - you don't see a huge price jump like TSLA's without haters jumping on the bear bandwagon. The problem is, with a stock price > $500, you can't do a whole lot of hating by shorting a block of shares - but you CAN buy NAKED PUT OPTIONS on margin. And that's where the problem lies...
At the present time (10:30a Thu), there are more than 48 THOUSAND OPEN PUTS between $500 and $525, and another 14 THOUSAND OPEN PUTS between $500-$490. When these put options are purchased, the investor's broker shorts the shares on the sellers behalf - usually on margin. When there are this many put options out there that expire in less than 2 days, we can start to see margin calls from brokers on any move up.
Thus, bears start devouring bears. Margin calls force investors out of put positions, forcing them to BUY the stock when they close their put position. Momentum to the upside shocks other bears, and any increase in price brings more and more buyers who cover their positions. That's one of the big reasons TSLA shot from $492.17 (intraday low) to $509.42 - a span of 17.25....in THREE MINUTES. The people at Morgan Stanley know this, and also encourage the sell off by the bears while undoubtedly holding their long positions - basically turning on a giant vacuum and sucking up all the option premiums on the short side from thousands of bears that can't afford to short the stock itself at 500/share.
Bottom line, there's a huge number of puts still on the books at the 510 level (8k w/ volume of only 3k). We usually see volume inline w/ open interest on the last 2 days before an option expires or is exercised. Expect TSLA to slowly trend up the rest of the day, some 'analyst' to come along and reaffirm their faith in TSLA, and the stock price to easily fill the gap and open tomorrow right around that $518 level it gap'd down from (likely followed by another run up to the $530-540 range).
sorry but see the whole picture. it will go to 365 then buy.
DontListenToThisClown
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@jamejia1970, I am seeing the big picture....I see 3.8 Million Shares being bought back in short order on a stock with an average daily volume of 13.4M - with 1.5 sessions remaining, that means 19% of the volume is practically guaranteed to be buyers. You take that bump into account, and it causes a temporary jump in price. There's no doubt TESLA is overvalued, and that's what's messed up about the whole thing, but you can't flood the market with demand from put positions forced to buy back the stock or be margin-ed out, drive demand through the roof, and then not expect some big move up. Unless there's some big news - beyond morgan stanley's attempt to manipulate the price - i think between now and friday at close, we see a big spike up in price. The stock likely moves sideways or slight uptrend into earnings (which are supposed to be record setting) come out...sell the news occurs as institutions dump...and that's when we might start heading towards your 365 in February.
DontListenToThisClown
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@jamejia1970, so much for 365...never estimate the buying power of the TSLA fanboys ;)
Now, I think we may well see a double top at that $550 level, and you might just get your wish of $365. I think we'll see the institutions start selling into earnings (which are likely to be good/earnings beats), and with the way february is shaping up...we could be in for a market wide correction.
pk1729
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jdlev, any update for Friday and next week? TSLA went down after hours
DontListenToThisClown
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@pk1729, Sorry for not getting back to you sooner...just got back from a few days vaca, and it looks the fanboys have kicked in the afterburners. I'll have a full update on TSLA analysis later tonight...going to put together a fresh chart, so make sure to follow me on tradingview and on twitter (@DaddieHack) to stay up to date on my most recent analyses!
ShinobiTrading
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Awesome analysis! What do you think is a 1 yr Target? Thanks
DontListenToThisClown
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@ShinobiTrading, One year targets are beyond my typical analysis timeframe. I'm more of of a swing trader...could hours to 2 months is my sweet spot :)