Tesla is massively overvalued and has been for a long time. We're talking probably something from 20-100x fair value, to be honest. But Tesla has also continuously moved higher, for several reasons.
First, institutions have been systematically gamma-squeezing the stock higher by buying out-of-the-money call options on it. (The story of the Tesla stock run is often told as a story of retail hype, but in fact most of the out-of-the-money call buys have been very large, and when you drill into the data, you find that Tesla is surprisingly not actually a favorite of small retail out-of-the-money call buyers.)
Second, there used to be some fairly large short positions open on Tesla. The shorts have gotten squeezed as the stock moved higher and have almost all been forced to cover.
Why the Bull Run May Be Over
Over the last 30 days, Tesla's average put/call ratio was .67. Yesterday someone opened a very large out-of-the-money put position on Tesla, and today the put/call ratio is 1.3. That represents an extremely bearish shift in options interest, and it suggests that the call options gamma squeeze on Tesla is probably over. The puts are spread across a lot of expiration dates, so this is not just a short-term bet. Someone is banking on Tesla entering a long, slow correction from here.
The short squeeze is over too. Short interest on Tesla is now super low, with just one day to cover.
In terms of technicals, Tesla has been moving in a large parallel channel and is currently in the top half of the channel, with much more downside than upside. It made two lower highs in February.
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This has panned out quite nicely. Possibly we will see a bit of a rally from here after news that Ark Invest bought a bunch of Tesla today.
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This Tesla thesis has played out beautifully, and Tesla has even breached channel bottom today.
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*Really* impressive bounce today that slightly violated the downtrend resistance line. I'm not expecting follow-through today, but possibly later this week Tesla will push through that resistance and resume its uptrend (if bond rates continue to pull back).
not to mention Elon brother sold 25million shares last night and day before that. if they know what's coming then we as the retail investor should look for the Easter eggs and follow the trail
ChristopherCarrollSmith
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@faisi001, it was 30,000 shares ($25 million), but you're exactly right. Insiders have sold a net 700,000 shares over the last 12 months, and a net 200,000 shares in the last 3 months. This certainly does not signal confidence in the current valuation.
@pythoncoder999, I am bearish on tesla for this year, however, I would like to point out that some insiders are legally bound to sell shares on certain price or time milestones, so trading _alone_ on insider activity is not to be relied on....prime example, a friend of mine missed out on WKHS leg-up because of the founder selling at $20, when in reality he was likely going to sell X amount of shares if/when it hit $20 price per share no matter what. Cheers and best of luck,
chickenboye
robintravel
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Thanks very much for your judgement on Tesla this time. Today I was looking for some inside story and found it here. Thanks again
farshadg2005
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Very well done. Great read!
Avirany
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Very informative, thank you for your time and for sharing
tt10001
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Then it would be an inside trading.(not possible)
I would wait it out. good news will come soon
gabegt
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so whats the next target on the downside? I wish I would have read this on Feb 11th. What a play....nicely done!