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Nov 2019 – TSLA $347-$337 Put Debit Spread

Stock
TSLA
Trade Structure
$347 - $337 Put Spread
Trade Date
11/07/2019
Expiration Days
12/13/2019

Trade Rationale

With earnings behind us on 10/23, TSLA shot up to the moon. I put on an earlier $320 - $310 Debit Put Spread trade for a short 17 days to see if TSLA gives up some of those gains and normalizes a little. The trade went in my favor immediately, however, after the "China Deal", the market kept roaring higher and TSLA reversed and just kept going against me. My directional bias hasn't changed at all and I still think the market is overdue for a correction. Hence this new trade. A TSLA $347 - $337 Put Debit Spread for $483. My directional bias is based on my simple trading principles and I always stick to it. Sometimes, I lose money on my trades, but that is part of the game. The overall goal is to win more than you lose. That is how you come out a winner in this game.

Trade Selection Criteria

Overall market movement

Market just hit an all time high with SPY touching $309 for the first time.

No Earnings or Significant News

Earnings are behind us and were announced on 8/23. There is no significant news or earnings event during our trade cycle.

Bollinger Bands outside Keltner Channels

Bollinger Bands are outside Keltner Channels. We are not in a squeeze or low volatility period.

RSI Analysis

RSI is in overbought territory. Although, inconclusive and not giving any clear signals. 

ADX Analysis

ADX being a lagging indicator is not showing anything conclusive. However, DI+ line is curving down and could indicate a loss of positive momentum

Trade Analysis

We got into this trade with a good gut feeling. Notice that, ADX was not in our favor though. After putting on this trade, TSLA never really gave us the opportunity to take any profit. It got stuck in a range for some time and then went on to make new highs. I had to close this trade when I lost 50% of my initial investment. i.e $248
Trade Outcome
Loser
Profit/Loss
$248
Beginning Account Balance
$15,982
Ending Account Balance
$15,734

To follow along the strategies we use in the $25K challenge, we recommend that you get the strategy book which explains the whys and wherefores of our method. Get it here=> https://amzn.to/2MUOCE5

13 Comments

  1. Oscar Pardo

    Hi. I find your web and challenge very interesting. Is there any way to follow your trades in real time so we can copy them and try to fullfill the challenge?

    Thanks

    Reply
    • Nishant

      Hi Oscar,

      Unfortunately, there are legal implications in providing financial/trading advice. That is the reason why we don’t push out updates in real-time or telling people to follow our trades. We are forced by law to provide this as educational information only. Our hope is that by following our trades and hopefully practicing them using paper-trading, you will be able to pick up on what we do and apply it to yourself. There is no rocket-science here. Just simply trading rules and training the eye.

      Reply
      • Oscar Pardo

        Allright, I understand your point.

        Just another quick question: do you use any type of hard or mental stop or if the trade goes against you just let it expire worthless?

        Thanks again

        Reply
        • Nishant

          I have mentioned in my book, how I deal with losing trades. I simply close them out when I lose 50% of my initial investment.

          Reply
  2. Mark McCurry

    Nishant–Do you every close out your orders early? Or do you just let them run? If you do what would be your advice on that? Seems kind or risky to lose $900 trying to capture the last $100.

    Reply
    • Nishant

      I close between 70% – 100% profit. Depending on how the stock is behaving. I totally agree with you that it is not worth holding on and trying to squeeze out the last few dollars. But if the stock has gone in my direction and my spreads are deeep in the money, I take 100% profits. But if it keeps zig-zagging during the duration of my trade, I close them at a decent profit.

      Reply
      • Mark McCurry

        Thank you that makes sense.

        Reply
  3. Neeraj Joshi

    Hey Nishant, I have read your book and want to say thanks for sharing your ideas. My question is, in recent times market has been moving drastically based on even a single tweet. As we know a bullish momentum can be pumped every now and then through random external factors or events. Sometimes I feel that technical analysis is no match for such factors. So, given the ongoing bullish momentum in market, how safe is it to be on bearish side? How do you steer away from such random events that occur every now and then that can easily prove us wrong quickly?

    Reply
    • Nishant

      Neeraj, that is a great question. I do agree with you the market has been going up like crazy. But I still follow my rules for putting on trades on market extremes. If you are in our FB group, you may have noticed that I closed 90% of my last round of bearish trades on a profit even after this volatility. I did lose out on a few trades. But as long as your overall outcome is positive, it doesn’t matter. Anyway, I would like to summarize some points here that may help answer your question:

      • When you put on trades based on technicals, use a small portion of your account. I start out by putting on 2% risk and add-on to my positions if it goes my way.
      • Trade small and spread your trades out between many stocks. So Instead of putting on a single trade risking $2000, do the same in many stocks risking $250 on each. In my recent bearish round, I put on GOOG, AMZN, NFLX, TSLA, BKNG. I made money on most of them and lost a few, however I still come out net +ve
      • If your trades zig-zag between profits and losses during the trade cycle (like what happened recently.. one tweet shoots it up, another brings it down), then close your positions when you hit 70% of target profit.
      • Close the trade if you lose 50% of your initial investment. By doing this 2 losing trades can be neutralized with 1 winning trade.

      Just remember the high level picture. Winners > Losers. It is as simple as that. You should be winning more than losing and your net liq should keep going up. As long as you stay focused on that high level goal, you can make things work irrespective of the market environment.

      Reply
      • Neeraj Joshi

        Thank you & makes sense.

        Reply
  4. Brian Anderson

    Nishant, what are your Keltner channel settings? Thanks!

    Reply
    • Nishant

      Hi Brian,
      My settings are the standard settings on TinkorSwim as follows:
      Displacement – 0
      Multiple Factor – 1.5
      Length – 20
      True Range Average Type – Simple
      Average Type – Simple

      Reply
      • Roveen Icasas

        Thank you for this, I had the exact same question.

        Reply

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