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by Koos van der Merwe
Elon Musk, the CEO of Tesla, recently wrote a tweet that has triggered a federal lawsuit. What's in store for the stock?
Position: Buy
Koos van der Merwe
Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.
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OPTIONS TRADING
Buying A Put
10/17/18 03:59:25 PMby Koos van der Merwe
Elon Musk, the CEO of Tesla, recently wrote a tweet that has triggered a federal lawsuit. What's in store for the stock?
Position: Buy
| Elon Musk tweeted last month that he is thinking of taking Tesla, the company he founded, private. After smoking weed on a TV show, and then tweeting that he had received funding for a deal to take the company he founded, private, many investors took that as a reason to sell the stock short. Tesla shares plunged 13.9% on Friday, September 28, after the SEC's lawsuit was announced Thursday evening. Of course, finding $25,000 to place a short trade is not that easy for everyone, but buying a put is. |
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| Figure 1. Daily chart of TSLA. |
| Graphic provided by: AdvancedGET. |
| |
| The chart in Figure 1 is a daily chart of Tesla showing how the share price dropped on September 28 from $315.79 to $264.77 on high volume. Buying the put on Thursday, after deciding that Elon Musk had overstepped the mark, one could have sold the put on Friday at a comfortable profit. |
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| Figure 2. Weekly chart of TSLA. |
| Graphic provided by: AdvancedGET. |
| |
| A weekly chart shows how the price of Tesla reached a high of $387.73 on June 23, 2017. The chart shows how the share price dropped to a low of $246 by April 2018. The share price then rose to a high of $387.46 by August 2018 before falling. Do note how volume rose as the share price fell, suggesting weakness. The RSI Index has also been trending downwards. None of the charts suggested that a major crash would occur in the stocks price on Friday, September 28. However, those investors who anticipated a fall in the stock's price after the twitter message that the stock was to go private, and listened carefully to any news announcement would have profited greatly by buying puts, a much better strategy than short selling the stock. |
Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.
| Address: | 3256 West 24th Ave |
| Vancouver, BC | |
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| E-mail address: | petroosp@gmail.com |
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