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I am an individual investor. My research in some companies has inspired me to use advanced trading strategies such as options/option spreads in order to achieve higher gains without drastically higher risk. I have a preference for investing in technology oriented industries. I write on seeking... More
  • TSLA Set To Break $200  0 comments
    Feb 10, 2014 9:35 PM | about stocks: TSLA, FB, NFLX, SCTY

    TSLA hit a new all time high today at $199.30 before closing at $196.56. The stock reversed its downward momentum from $170 on February 5th, and has appreciated for 3 trading days in a row. This movement is mainly momentum based (from light short squeezing), and small pieces of good news. Longs now question their positions in anticipation of a sell off at $200. The best strategy to maximize gains with this stock is for longs to hold.

    Here are the arguments for buying, holding, and selling (synonymous with covering, holding, and adding to position for shorts):

    Buy: The handle of a cup and handle in TSLA is at $195, which suggests an appreciation through $200 based on momentum. Also, buying in anticipation of a good quarterly report (Elon would not allow all the good news to be revealed before the quarterly report) and a positive report from NHTSA's investigation (likely due to the fact that Version 6 reinstates the lowering of the car at high speeds as optional, which was removed in order to reduce risk of fire).

    Hold: TSLA has two big catalysts that could move the stock upwards, and downwards movement can happen due to a sell off at $200. Since there is little time before the quarterly report (Between January 17 and 19) and probably little time before the NHTSA report (Tesla would not start to release Version 6 which reinstates lowering at high speeds if they knew that they were required to reduce the risk of fire anyway). This strategy allows to add to the position if the stock falls after hitting $200 (perhaps by selling SCTY, FB, NFLX), and also allows to enjoy upwards movement.

    Sell: There is a strong possibility that TSLA at $200 would trigger a sell-off. Also, based on current fundamentals, the stock has been overvalued for quite some time.

    Ultimately, holding seems to be the best option because the light squeezing of shorts will continue if the majority of longs choose to hold. Buying seems unwise at this price level, unless you believe strongly in technicals of stock charts. Selling also seems unwise because it will be difficult to time the buying back in for the Q4 '13 report and the NHTSA report. Moreover, selling based on speculation of what other investors will do is absolutely a bad idea (and so is selling due to the fact that the stock is overvalued, the market has shown repeatedly that immediate fundamentals are not the key to pricing this company)

    The longs have a prisoners dilemma, or rather, an investors dilemma. If the majority choose to hold (cooperate), the light short squeeze could continue to $210-$215 this week. If the majority choose to sell (rat the other man out), the short squeezing will slow, many shorts will reinstate their positions, and the stock could decline to $180-$185 this week, giving longs a chance to buy back at a lower price. Holders can take advantage of either movement, but the holders will not be able to take advantage of a downwards movement to the fullest extent. Sellers will be able to take advantage of a downwards movement to the fullest extent, but if the upwards movement continues, the short amount of time before the two large catalysts could mean no re-entry point (except at a loss).

    Holding is the wiser option for this stock (for longs), which means that if the market acts wisely, the stock will rise well above $200, and will continue its upwards movement after a good Q4 '13 report and a positive NHTSA report.

    I am not your financial advisor, and I am not responsible for any losses that might occur from the actions recommended in this article.

    Disclosure: I am long TSLA.

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