Why Tesla’s Stock (TSLA) May Be Headed In Reverse

Tesla Motors has been dominating news headlines lately and has become a darling of the stock market. Recent news included a software update for Tesla owners that allows them to map out a route based on current traffic congestion. Amazing stuff really.

Other features for Tesla Model S owners include remote start from an iPhone and the ability to raise suspension when going over ridges or bumps. This latter feature also includes a location memory feature so that if there is a location when the driver repeatedly raises the suspension, the car will start doing it automatically when it comes to that location.

What does this all mean for Tesla’s stock price?

Features are cool, but they can potentially also cause problems. Is it really easier to get out your phone, open an app, and type in your password in order to start your car, or is using a key much easier?

Features aside, I prefer to look at select technical and sentiment indicators to interpret what’s next for Tesla Motors (TSLA) stock price.

Looking at the chart, of what has been a very strong stock, we see a failed breakout above the previous highs, and a break below the 50 day moving average. We also have a head and shoulders pattern which broke the neckline yesterday.

Support below could come in at $240, but below that the is stronger support at $230 and $215. See the chart below.

Tesla Motors (TSLA) Daily Chart

tsla stock chart analysis september_tesla

 

With the general market also looking a bit weak, and the September / October period being historically weak in the markets, we could see more downside in TSLA.

If you think TSLA is headed lower, a direction butterfly is one way to play it.

The Trade – Buy TSLA October 17th 200-215-230 put butterfly.

Currently this costs around $130 with a total potential profit of just under $1,400.

You would need a decent pullback in TSLA for this trade to be successful, but it’s a very cheap way of getting a bearish exposure on TSLA without having to take any of the upside risk. Tesla’s stock can rally up to $300 and the maximum you will lose is the $130 you paid for the spread. Here’s a visual:

tesla stock options tsla puts

 

Follow Gavin on Twitter: @OptiontradinIQ

No position in any of the mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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