This is a recap of my TSLA short trade using put options that gained +800% over night.
It was the most aggressive options trade I have ever executed and profited from.
What it looked like near its peak:
Final sale price at $85 per contract:
So I thought it's worth noting the thinking process and logic behind this trade since these type of opportunities will come by time and time again!
For many weeks, TSLA has been in a parabolic curve. Parabolic moves upward are usually and almost always accompanied by crashes that are at least as large as its powerful rise. Hence, these are commonly referred to as "pump-and-dump."
These type of movements are naturally difficult to spot and catch before the big run up. By the time you hear about these from a friend, chatrooms, major news outlets, or the social media, it is usually nearing its peak. A pump-and-dump peaks at the time of extreme and unreasonable euphoria.
So instead of trying to ride it on its way up, you can take advantage of key indications that it is near the top! ...and about to crash really hard!!
But how exactly can you spot the top?!
In reality, you can never 100% truly predict the future movement of a stock or any instrument. But here are the key indications that I used on TSLA that gave me clues that the top was very near:
1.) Shape of The Chart
The slope has to be curving upward (parabolic) and has been moving almost vertically for the past few days.
2.) Weekly and Daily RSI
Ideally, you would want the weekly and daily RSI to be extremely overbought in the RSI (>80). On 02/04/20, both the weekly and daily RSI of TSLA was > 90.
3.) Extreme Hype
From your coworkers, the entire chatroom, to major news outlets, you would feel as though literally everyone is talking about it. I have always believed that: one does not find a bubble; the bubble finds you. Check stocktwits for sentiment. See robintrack for its popularity among robinhood users (mostly retail investors/traders). The more inexperienced and new traders participate, the sooner the peak comes.
4.) Weakness in Daily Candlestick
The day before the first big dump, TSLA finished with a doji daily candlestick. This moment of indecision could be a signal for bears to take their turn.
5.) Standard Deviations
This same day, TSLA price action was mostly beyond 3 standard deviations on the daily chart (see Bollinger Bands indicator configured to 3SD). This essentially means that it was an extremely rare occurrence. Statistically, that price action from TSLA only happens 0.3% of the time. Thus, it will make a move higher an even more remarkably rare event! This prompt me to bet aggressively on a red day to follow.
To maximize profits and time the best entry:
Assume the day will finish strong. Buy the puts near the end of the day when the stock price is near its all-time-high. Assume break outs to the upside. Set a limit order far below the current market price of the put option. And since I was betting on a red day to follow, I also chose the closest expiration date.
These type of opportunities where simply guessing the direction correctly can instantly yield 3x, 5x, or 10x of your capital is hard to come by. So be on the look out when you see the next big parabolic move!
Disclaimer: This was my second attempt at shorting TSLA. My first attempt resulted in ~30% loss (~$400) by directly short selling the stock. Shorting parabolic curves carry significant risk. Trade at your own discretion.
Comments