Love it or hate it, Tesla Inc. (Nasdaq: TSLA) is a freak of nature.
Tesla manufactures electric vehicles, but it’s so much more than a car company.
Its battery technologies serve its car-making needs and other consumer applications. And its autonomous technologies will open up new horizons for the company.
I’m sure that barely scratches the surface.
Suffice it to say, Tesla’s future is promising. Its potential for innovation and disruption is enormous.
But at the same time, an economic recession brings headwinds for Tesla.
A slumping economy will squeeze the automaking side of its business, and other areas will need to take up the slack if its stock can maintain current valuations.
There is plenty of fodder for bulls and bears.
But most of those things do not matter in the short term.
Price matters.
And price tells me that TSLA’s rebound is topping out at critical resistance. It is set to decline double digits in the next two months.
Shares Set to Fall 30%
You can play Tesla’s chart setup for triple-digit gains when the stock drops.
The black line is the share price of Tesla.
The blue A-B-C pattern denotes the stock’s recent rebound.
I use these patterns to predict price trends. It’s the framework for my Apex Movement Patterns, or AMPs.
Prices are driven by basic emotions. AMPs help me identify when investors switch from fear to greed — and vice versa.
I expect a 30% decline to roughly $500 per share. This would constitute a logical retracement — or correction — of its AMP rebound.
TSLA’s correction will correspond with a corrective sell-off in the broad stock market.
If fear spikes the way it did in March, the broader sell-off will push stocks to new lows … and TSLA will fall more than 30%.
Your Trade Setup
To benefit from the downside in Tesla, you can buy a put option. The value of the put will rise as the stock declines.
Since the expected move is less than two months, we can use the June 19, 2020 expiration date to take advantage of it.
With the stock trading around $732, we can buy the $730 strike price for roughly $104.
That gets us in a position to double our money as the stock price moves toward $500 a share over the next couple months.
Since this is a bonus opportunity, we won’t be updating you on what action to take next. A good rule of thumb is to set a limit order to sell half at whatever would net you a 50% gain.
For example, if you buy the put option for $104, you can set a limit order to sell half at $156.
But you’ll also want to watch your downside risk. Look to preserve capital if it falls below a 50% loss.
Here’s a table with the trade setup:
That’s all for today.
Reach out to us at winninginvestor@banyanhill.com with your questions or feedback!
Good investing,
John Ross
Editor, Apex Profit Alert
P.S. For a deeper dive into Tesla and its price chart, check out my new video on YouTube, “Tesla Price Chart: Your Triple-Digit Trading Solution,” by clicking the play button below.
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