What to Learn from Shorting Tesla Stock Amidst Its Decline?
This is the TradingFlow Team, and this article will focus on options or equities, guiding you through the rationale behind compelling trades and demonstrating how to effectively utilize TradingFlow tools.
In this edition, we will explore how shorts have been navigating and profiting from the recent downturn in Tesla's stock price through options data.
(Source: Unsplash)
Tesla faced continuous challenges last week, with its stock price dropping below $200 and continuing its downward trend, hitting a low of $173.
As of last Friday's (8th March) closing, Tesla had fallen by a total of 13.47% for the week. Additionally, reports from the media suggest that the power outage issue at Tesla's Berlin factory might persist.
Let's take a look at how bearish traders have been navigating this Tesla pullback and how they've been able to spot trend signals.
The first notable event widely observed by the market occurred on 1st March, shortly after the market opened around 9:42 AM Eastern Time. A significant amount of bearish sentiment (as shown in the chart below) flooded in, with trading volume surging. Nearly 3,000 contracts of call options with a strike price of $215 were sold at around $3.9 per contract:
(Source: TradingFlow)
Furthermore, looking at the full-day volume data on 1st March, by the time of the closing bell, open interest (OI) had significantly increased, with sellers accounting for nearly 74% of the total. This suggests that the large sell-off of calls that day was likely opening positions (considering subsequent movements in Tesla's stock price, this trade probably resulted in substantial profits):
In addition to the unusual activity in the options expiring on 28th March, further digging into the data reveals that since February, there has been significant activity in the put options expiring on 22nd March with strike prices of $165 and $170:
（The Tesla put expiring on 22nd March with a strike price of $165）
From the data in the chart below, we can see that the put expiring on 22nd March with a strike price of $165 had a trading volume of nearly 7,000 contracts on 12th February, with asks accounting for over 78%.
However, after 12th February, Tesla's stock price showed overall upward volatility, with a notable 6% increase in closing price on 15th February. During this period, the contract prices dropped by as much as 80%. Despite the significant decrease in overall trading volume, we can observe a continued rise in Open Interest (OI).
Following 29th February, trading volume surged, OI continued to rise, and sellers dominated the majority of trades. There is a high probability that this was the same trader adding to their position on dips:
As of 6th March, the average price for trading these contracts reached $2.74. Considering the possibility of traders adding to their positions on dips, the profits from this round of trading should be quite substantial.
The put options expiring on 22nd March with a strike price of $170 traded similarly to the details mentioned above (see chart below). Based on the average contract price, the profit potential for this $170 strike put trade may be even higher:
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Before making any financial investment decisions, please ensure you thoroughly understand all aspects of the information and conduct your own research.
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