DailyPlay – Opening Trade (TSLA) – December 1, 2022

TSLA Bullish Opening Trade

View TSLA Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 1 Contract Dec 30th $195/$225 Call Vertical Spreads @ $9.70 Debit.

Total Risk: This trade has a max risk of $970 (1 Contract x $970).

Counter Trend Signal: This is a Bullish trade on a stock that is experiencing a neutral to bearish trend.

1M/6M Trends: Neutral/Bearish

Technical Score: 2/10

OptionsPlay Score: 106

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note these prices are based on the previous day’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

The Fed Chairman spoke; investors took what he said bullishly; and the SPX ran almost 3% to its best close since early September. So, everything is fine again, right? Well, Wednesday’s move higher also marked the SPY’s first daily +13 signal of the year (in this case, an Aggressive Combo signal) on a day that bulls got all they wanted to hear. To me, that’s not what you want to see to first now be getting bullish. (Almost all of our trades have been bullish ones since the October low was made.)

SPY – Daily

But here’s what you really need to ask yourselves: Did Fed Chair Powell just repeat a similar mistake to what he did in July – when investors badly misinterpreted his intentions to keep rates high and not pivot – or did he actually just tell the world that things have improved enough that their pace of raises can materially decline. (BTW: the market has figured that December would only see a 50 bp. hike for weeks already, so was yesterday’s overkill?

The Fed is now in a quiet period for the next two weeks until their next rate change announcement comes on Dec. 14th. That means Powell (nor his other governors) can walk back yesterday’s comments. It would have to come from some other source of theirs that they could potentially get the word out without actually stating them. (He often uses a WSJ reporter for just that situation.)

This also puts further meaning into Friday’s employment numbers:  Will the data support or conflict how bulls have just positioned themselves? (I’m hearing that the job creation number could be well above what’s Street consensus. If that’s the case, we could see today’s rally completely erased – and then some – on Friday. 

Personally, I find it hard to think that Powell had the intention of his words coming across as dovishly as the market took them. Time will tell.

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A new option idea to consider playing is in Tesla (TSLA), which like many names yesterday did a complete turnaround. The weekly chart shows four unrelated reasons that this may have put in a trading low:

1. Last week’s low came within a few percent of its 200-WMA; 
2. Three weeks ago was Setup -9; 
3. Price held support in the mid-$170s from the double-bottom in 2021; and 
4. Price held against the bottom of the channel drawn against the downtrend line.

With the VIX collapsing to near 20, let’s look to buy a HALF POSITION (+- 1% risk on your total portfolio) in a TSLA Dec. 30th $195/$225 call spread today, and ANOTHER HALF POSITION IF the stock trades down to $191 to $189 by week’s end, in which case we’ll buy the $190/$225 call spread at the then current bid/offer mid price for these strikes.

TLSA – Weekly