While the bear's corpses are still warm, here are my thoughts on the Tesla beautiful madness that we’ve all been witnesses to on the 3d and 4th of February.
I guess that literally, EVERYONE was there, trying to get their piece of the action in Tesla.
Some late to the party retail investors, all the day and swing trading crowd, with their pitchforks and torches out, ready to slay and bury all the bears still left, and then the poor bears themselves, who came in two shapes.Regular short-sellers and option sellers.
I think that the reason for which the last day's surge was almost vertical and the insane highs that the stock got to, was in the stubborn short sellers finally being forced to close their positions on the market where no one is selling in the sufficient volumes, and, most importantly, deep out of the money call option sellers, caught between the rock and hard place, also forced to cover.
A classical case of an elephant on the thin ice. Given that Tesla was thought by many, to be on the brink of bankruptcy, with the words bubble and even fraud frequently associated with it, no wonder crowds were drawn into selling deep OTM calls for pennies on the dollar, thinking it was a safe way to make a 1000 dollars doing nothing.
And even just a few days ago, before the Q4 report, many thought that this was a peak, and selling options at the strikes that were 20-30-40% away was a great idea.
When the going begun to get tough on the first day of the slaughter, many of them, who were OTM deep enough decided to wait for the time decay to solve the problem. Or hoped that the price simply never got there.
Others were forced to cover, with their bids pushing the price up, triggering new strike levels.
The next day, however, some of the "too far away to care" folk woke up eyeing their expected easy 1000 dollar profit turn into 5-10 thousand dollar losses.
These people needed to buy the stock, or buy the options back. And No one was really selling. I only wish I could have seen the Level2 action those days….
The higher the stock went, fueled by the competing option sellers, desperate for the cover, and speculative small traders that came to feast on their pain, the further away strike levels were being triggered.
And so on. More new levels triggered led more people into buying at ANY PRICE. If you calculated the combined open interest on all of the strikes for all the expirations a week ago, that would have given you a MASSIVE powder barrel, ready to blow up, with the Q4 report being the lit match thrown into it. A self-fueling machine with no breaks. The surge stopped only when someone started selling consciously, feeling that the price was right. And while I gave you an example of a small trader Joe with a 10k dollar losses, I am sure there were hundreds of hedge funds that were in the same situation and got burned badly.
So we’ve got a tale of a cult-like company, with the armies of both fans and haters, and the arrogance and madness of the crowed amplified by the destructive power of the financial derivatives. Love it. Beautiful. Precisely the kind of stuff that we like here on the market.
On a side note, if you are an intraday trader take a look at the last 3 trading day's charts. Good setups. Good timing. That is, however, provided that you had enough buying power. Yet, look at the charts for educational purposes anyway. Turn on a 3 minute chart to get a proper view. Dont like the early morning trades but the first arrow there was still good. Should have judged by the Level2.
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I guess that literally, EVERYONE was there, trying to get their piece of the action in Tesla.
Some late to the party retail investors, all the day and swing trading crowd, with their pitchforks and torches out, ready to slay and bury all the bears still left, and then the poor bears themselves, who came in two shapes.Regular short-sellers and option sellers.
I think that the reason for which the last day's surge was almost vertical and the insane highs that the stock got to, was in the stubborn short sellers finally being forced to close their positions on the market where no one is selling in the sufficient volumes, and, most importantly, deep out of the money call option sellers, caught between the rock and hard place, also forced to cover.
A classical case of an elephant on the thin ice. Given that Tesla was thought by many, to be on the brink of bankruptcy, with the words bubble and even fraud frequently associated with it, no wonder crowds were drawn into selling deep OTM calls for pennies on the dollar, thinking it was a safe way to make a 1000 dollars doing nothing.
And even just a few days ago, before the Q4 report, many thought that this was a peak, and selling options at the strikes that were 20-30-40% away was a great idea.
When the going begun to get tough on the first day of the slaughter, many of them, who were OTM deep enough decided to wait for the time decay to solve the problem. Or hoped that the price simply never got there.
Others were forced to cover, with their bids pushing the price up, triggering new strike levels.
The next day, however, some of the "too far away to care" folk woke up eyeing their expected easy 1000 dollar profit turn into 5-10 thousand dollar losses.
These people needed to buy the stock, or buy the options back. And No one was really selling. I only wish I could have seen the Level2 action those days….
The higher the stock went, fueled by the competing option sellers, desperate for the cover, and speculative small traders that came to feast on their pain, the further away strike levels were being triggered.
And so on. More new levels triggered led more people into buying at ANY PRICE. If you calculated the combined open interest on all of the strikes for all the expirations a week ago, that would have given you a MASSIVE powder barrel, ready to blow up, with the Q4 report being the lit match thrown into it. A self-fueling machine with no breaks. The surge stopped only when someone started selling consciously, feeling that the price was right. And while I gave you an example of a small trader Joe with a 10k dollar losses, I am sure there were hundreds of hedge funds that were in the same situation and got burned badly.
So we’ve got a tale of a cult-like company, with the armies of both fans and haters, and the arrogance and madness of the crowed amplified by the destructive power of the financial derivatives. Love it. Beautiful. Precisely the kind of stuff that we like here on the market.
On a side note, if you are an intraday trader take a look at the last 3 trading day's charts. Good setups. Good timing. That is, however, provided that you had enough buying power. Yet, look at the charts for educational purposes anyway. Turn on a 3 minute chart to get a proper view. Dont like the early morning trades but the first arrow there was still good. Should have judged by the Level2.
Like, subscribe, comment and share for more ideas.