I’ve had more than a few people ask me about Tesla over the last two weeks.
First, of course I’ve been watching… what we’ve seen going on with Tesla is a story that will be told and used as a teaching aid for decades.
Second, great job on selling, this is an example that you don’t have to sell a stock at its highs to feel good about getting it out of your portfolio. To many people feel like they can’t sell unless they do it at the top. NEVER let pride be part of your investment strategy. Third and most important, Tesla still has a long way to go before it can be considered a technical buy and YES you can still make money from the decline.
Let’s get into the details on how to trade the next big move lower in Tesla.
Since 2013 I’ve had a simple rule when it came to Tesla stock… Never short Elon Musk.
Musk is just one of those people that will find a way when it comes to his vision as an inventor, it’s extremely hard to bet against that.
The rule worked for more than a decade. Every time I thought “this is the time that I can buy puts on Tesla” I was glad that I didn’t as the company would announce or do something that would erase any chance that a bearish trend could set in.
Those days have passed.
The “Elon Put” is gone for good reason.
Investors are quickly losing faith in Tesla.
Members of the company’s Board are selling, his brother is selling, institutions are selling. Historically, it would be a good sign to see the market turning on a stock, it’s a sign that the stock is ready to climb a wall of worry.
Not in this case. This is a situation where the fundamentals, technicals and sentiment have turned negative on Tesla… a perfect storm combination for the Tesla Bears.
I’ll keep this relatively simple as I’m not breaking any news here. As a company, Tesla has run into a lot of issues.
Starting last year, Tesla started to see cracks in its fundamental firewall.
Sales started to slow as competitors were entering the EV market. Pressures from the Government were forcing companies like GM (GM) and Ford (F) to increase their efforts to produce EVs.
In an interesting twist, these companies backed off EV production due to the expense and lack of demand and shifted to hybrid vehicle production increases to meet regulatory requirements.
As a result of the competition and other economic influences, Tesla has seen its revenue decline to single-digit growth that has dipped into negative territory once in the last year.
Earnings per share have been below analyst expectations 5 of the last 6 quarters, and the company has waffled on its outlook for both as it struggles to find its groove.
Ironically, this morning the Financial Times (FT) reported that Tesla is missing $1.4 billion in a possible accounting anomaly that could raise investor concerns.
Tesla stock is now trading 52% below its all-time highs from December.
The stock saw a “Trump Bump” that lasted two months as investors and analysts believed that Tesla would benefit from Musk’s close relationship with the Trump Administration. That relationship may become more positive for Tesla, but many of the regulations required come at the state level.
The company just received limited approval for passenger transportation in California that will help the Robotaxi project move forward, but investors are far from the point of getting excited.
That 50% decline was enough to dip Tesla stock into a long-term bear market trend as it broke through its 20-month moving average earlier this month.
That 20-month trendline is used as a line in the sand for stocks to determine when they shift into a long-term bear market. The last similar move in Tesla stock came in May of 2022. The stock had dropped 37% from its all-time highs posted just seven months earlier. The stock fell another 53% from its price at the time that it broke into that long-term bear market trend.
Over the past ten days, Tesla has benefitted from what will be seen as a “Dead Cat Bounce” after the stock hit oversold conditions on March 10. Since then, the stock has rallied 13% in a consolidation that is likely to break to another rush of selling pressure.
With short-term technicals like the stock’s 50-day moving average firmly in a bear market trend it would take a massive shift in sentiment and the fundamental outlook for Tesla shares to break out of this new bear market trend.
Tesla’s oversold bounce is the only thing that has saved it from a serious move below $225. That level has been the site of historical support and resistance for the stock so traders will use this as a trigger for the next wave of selling pressure.
That’s what you want to do here, get ahead of the NEXT wave of selling, just like the person that told me they sold their stock a few weeks ago.
From there, you play the trend.
The break of the 20-month moving average along with the bearish 50-day trend forecasts lower prices over the next 3-6 months.
A look at the chart identifies the $175 as the next technical target price for Tesla and then $150 as a stretch price over that 3-6 month time.
This is a simple play the trend with a trigger price approach to trading Tesla.
Trigger Price: $225
Target Price 1: $175 (22% decline)
Target Price 2: $150 (33% decline)
In this situation, the September 19, 2025 expiration options allow for the 3-6 month window that I already mentioned above.
Here’s a pro tip, don’t try to thread a needle in a hurricane by trading an option that expires in two weeks or even two months. This trade idea is meant to play to the longer-term trend in Tesla, let that trend play to your favor with a longer-dated option. In other words, don’t get cheap.
In this case, I consider the $230 strike price.
Putting that together gets us the September 19,2025 TSLA $225 put which is currently trading for $3,650 a contract. Remember, I said don’t get cheap.
Let’s look at the potential return in a conservative way by just using the intrinsic price as a price for closing the position first. For those unaware, the intrinsic value of the option is simply the strike price minus the price of the stock in the case of a put.
The return on the position at each of the target prices would increase if Tesla stock were to hit either of its targets in less time.
Of course, I need to point out that options trading carries significant risk and is not suitable for all investors. Prior to trading, ensure you understand the risks involved and consult an independent financial advisor.
