hi I'm Steve Spencer a partner at SMB
Capitol proprietary trading desk in New
York City where we trade stocks options
and futures in today's video we are
going to discuss how to use options to
express swing trading idea without a lot
of questions about options using options
over the last year I don't think I've
done a video on it and so in today's
video we'll discuss how to capture a
swing trade in Tesla if that topic
interests you stick around
[Music]
before we get started one of the things
that SMB capitals trading desk is known
for is for trading the best stocks in
play each day we treat those stocks
because they offer the lowest risk for
the highest reward we did a two
three-hour workshop if you click on the
link above or go to treating workshop
comm you can sign up for that two-hour
workshop where I spent 30 minutes
explaining exactly how to find the most
in place talks during the day and as a
bonus there are three low-risk
high-reward trading setups that we use
on our prop desk as well it's free it's
great check it out so in today's video
we are going to talk about Tesla Tesla
is what is known as a momentum stock
momentum stocks are more volatile than
the market overall and throughout the
year they offer both very good trading
opportunities for intraday trades but
also occasionally we'll set up really
nicely for swing trades as well so what
I want to do today is discuss a recent
swing trading idea I had on this stock
on the long side of bullish swing trade
and next time we do a video we'll do it
on the short on the short side these
setups are kind of mirrors the mirror
one another and it's to probably of the
four most frequent options setups that I
use options trades that I make and I'd
like to kind of cover all the bases but
today we're looking at a bullish trade
in Tesla and so we're gonna look at
several different time frames if a
tassel has been trading recently my
reasoning behind putting on the bullish
trade and give you some details of the
actual trade itself so first thing I
want to understand is that castle on a
higher time frame on a monthly you know
in a longer time frame it had been
trending lower over the last let's say
six months or so if we look at this
chart from 2018 coming to 2019 didn't
been moving down for a while between 280
and mid 300s August of 2018 and
and again I guess at the Sandberg
January of 2019 it topped out at 380 and
then after that it came off really hard
down to 300 it bounced again but it
didn't make a series of lower highs and
you can see I drew it down trend on the
daily chart and then eventually what
happened was recently in the last couple
of months it it cracked that to a tee
and once it started to spend a time
between 280 and 260 it really was
setting up for further downside people
were becoming more bearish on it and
over the last month it really really got
hammered and so what I've drawn in there
on the long-term chart is the long-term
downtrend you can see it kept on
bouncing up to it even recently like a
few weeks ago it bounced up to it when I
went bouncing to 32 to 58 before moving
down again and in the last couple of
weeks but down the downward pressure
accelerated and I drew that steeper
downtrend whenever you have a higher
time frame downtrend like that and then
it gets steeper the steeper trend can't
sustain itself and you'll get a bounce
where that steeper downtrend will break
and you'll start to move towards the
higher time frame downtrend and that was
the basic kind of a basic concept on the
bullish tree that I made and as I said
we'll do the same thing on the on a
bearish set up in something accelerates
the upside and that'll be the next the
next video so let's zoom in a little bit
more on lower time frames so we can get
take a look so the Tesla 30-minute chart
is going to show us over the last few
weeks kind of what it did it basically
had come off to 230 a few weeks ago they
announced that they were raising money
via stock sales and some bond sales the
market was looking for them to raise
capital the market had signaled that it
really wanted them to raise capital was
not comfortable with their cash position
which i think was one or two billion
dollars said hey why don't you go I've
made some more money we'll feel it feel
better and actually reacted positively
the first little circled area there was
when they said they were gonna raise
capital it spiked from 2:30 into the two
40s actually got all the way up to I
think to 58 that's the last time I did a
video on it and then it came down they
raised the capital at 243 and then after
getting below 240
started to come off pretty hard and then
actually when you look at the most
recent week the downtrend really started
to accelerate even from the 30-minute
trends so you can see on this chart
we're in the lower timeframe already we
have a downtrend from around 250 or so
and it's come off too into the two 30s
and you see that downtrend even that
30-minute downtrend is really
accelerated over the last few days so we
have the daily downtrend
we've moved well below that and then we
have this 30-minute downtrend that was
forming over the last couple weeks and
we started to accelerate to the downside
there on Monday gapping below 200 and
that's that's when I initiated the the
bullish options trade you think to
understand about this too is and we'll
get it to not only Monday we'll kind of
work our way to today where we kind of
had the capitulation bottom in Tesla at
least that's what it looked like
but what you had was musk sent an email
out to his employees six days ago or
seven days ago saying we've got a really
tighten up thing on expenses we got to
be careful here if we don't if we spend
too much money we keep on losing money
of this rate things are going to get
really bad as soon as I actually saw the
headlines for that email I was like wow
this stocks already weak Alaska's
warning about expenses I know people
there's gonna be some analysts or some
guy talking head on TV it's gonna say
wow they're really the sales must be the
worse than we think
let's you know let's really start
selling it and you can see the next day
it really started to accelerate to the
downside then used for more negative
headlines Morgan Stanley analyst who
apparently had been bullish on it for a
while talked about worst case scenario I
think ten or twenty dollars it was just
it was kind of like when stocks it's
it's the same thing when stocks go up
you start to see more bullish headlines
when stocks get weaker you start to see
more bearish headlines and you get this
crescendo where the bearish headlines
they build and they build and people
talk about stocks going out at companies
going out of business and the stocks
going down to crazy prices I mean we're
talking about a stock that just sold
this just holds stock a week or two ago
at 2:43 and the stock comes off to 220
and you've got the a Morgan Stanley
unless saying
worst case scenario $10 even though he's
still kept a 230 target on it but those
sorts of things or what happened when
you're getting near bottom
and so one of the safest way to play
something that's starting to get
accelerate to the downside is via
options you jump in with stock sometimes
it'll go down another ten before it
bounces twenty or thirty dollars and so
this trade that I'm going to show you
with options how we structured it was to
give us some cushion so the stock had
sold off they sold stock at 2:43 sold
off really hard down to down to the
front of 200 and then Monday morning it
was gapping below 200 that's when we
decided to put on our bullish options
Creed and one of the ways that we like
to do this is with options because we
don't have the exact timing we thought
that day would start the balance but we
want to give ourselves a little bit of
time and it happens on a Monday so we
have to make a decision do we put on the
options forex plan for Friday four days
out or do we go out a week further and
give ourselves time you know maybe this
day firstable or 200 only bounces five
or six dollars or $10 and it doesn't
really have a big bounce we can give
ourselves two weeks to capture a bigger
move up to 215 to 225 if the pricing is
good and it turned out because it had
come off so quickly and because it was
gapping below 200 down to 197 we were
able to sell puts which effectively
would make us long down into 180
we sold 185 puts and we bought 215 calls
we actually got paid for putting on the
street so it was on Monday the
expiration was not this Friday it was
the following Friday what it looks like
here is that this is a complex order
ticket and basically the default setting
is to buy 10 Kandra is 10 contracts and
so right here what you're seeing is
buying 10 contracts 10 calls selling 10
puts and you're actually getting a
credit I'm in this case I think we got a
credit of close to $4 for putting that
trade on and so we were basically making
the bet that over the next couple of
weeks this stock was not going to close
below to 185 and was gonna hopefully
close below above 215 and if it did that
not only would be we would we collect
all the money that we got for putting
the trade on but the calls that we owns
would move up in value so that's that
and you can see here's the chart from
the day we put it on right on the open
it flush to the lows we sold the puts we
bought the call
it popped up in the next 15-20 minutes
to above 200 in this situation when I
put a trade on the on light on this on
what we do is when we put it on we say
okay if the trades not working meaning
we put it on when the stock was trading
196 will take off half of it if it's not
working if it continues to go down so if
it goes down a few more dollars let's
say below 194 will take off half the
trade and we'll give it a chance though
because the puts that we sold it out on
185 we're not particularly nervous we
also sold that strike because we knew
the longer-term support over the last
couple years was in the 180 to 182 area
and we knew we basically wanted to be
long between 182 and 180
can finde you'd lower over the next
couple of weeks and so that's why we
sold that strike and then in this case
you can see it bounced up at eight or
nine dollars it came back down and again
made a higher low at 198 and then
eventually started consolidating above
200 so we felt pretty good about the
trade and eventually it moved up to 205
206 and you can see it started to move
sideways about ten dollars above where
was in the open we put in the trade and
it was having trouble there it was a 5%
move so the general rule I use by the
way that the puts that we sold were 5%
below the market when it opened and when
a stock is ill extended to the downside
it's sold off three four or five days in
a row
what I'll try to do is help puts 5 to 10
percent below where it's trading at the
time to give myself some cushion and
then when it bounces five percent what
I'll do is I'll use common stock short
common stock as a hedge against the
calls that we own because we have to
deal with times again options one of the
things you have to deal with is each day
they lose a little bit of value based on
time decay and so nice 5% balance up to
205 we head to off 20% of the position
and so that way over the next week if it
doesn't continue higher we covered the
risk of that time decay by being short
from 205 we will also can capture if it
actually rolls over and goes all the way
back down below where we initially put
in the position we have some downside
protection meaning we're going to
collect money on the short from 205 as
it goes moves lower and so we're really
in a position of strength at this point
meaning over the next week if it trades
up to 210
we're gonna capture the value of the the
80% of the calls that are unhedged
the puts that we sold will expire
worthless we have all that money that we
collected as I said it was close to $4 a
share that we collected and that's how
we're positioned for the trade it's a
low-risk way to kind of play the trade
now after that initial bounce on day one
Tuesday and Wednesday happened more
negative headlines as I said Morgan
Stanley said the shares can drop to $10
a share then yesterday Consumer Reports
came out and said autopilot breezes
safety concerns and it's just pile on
pile on pile on and it actually on
Wednesday sold off and was pretty weak
and closed down below where we put on
the position on Monday below 196
actually clues that 192 and so I was
prepared for it to gapped down today so
we actually bought some puts expiring
Friday the 180 is thinking if it gapped
down this morning
those puts would get juiced in value
we'd sell them and we would still have
our original position on the short head
from 205 the the short puts at 185 and
the long calls and so here's today's
action here are the the labels of the
support resistance levels because this
was kind of a capitulation day and I
want to talk to you through capitulation
day support and by the way we do this
before the market opens so obviously all
the levels basically an email leaked in
the pre market where musk said thing
another militant employees probably
because he is not too happy about it
the stock getting obliterated dropping
20% in the last couple of weeks and he
basically said he said what the orders
were through the midpoint of this
quarter he said that they're expecting
based on this current rate to actually
beat the December quarter which was a
record quarter where they made a ton of
cash and immediately the stock bounced
about $15 and so you can see we had our
levels in there we had s2 was 182 was
the long term support s1 we had was 184
kind of early in the pre marketed moved
above 184 to 185 186 so I thought in the
open maybe that was the first place I
could potentially support and then all
of our resistance levels actually on
that pop and the pre market got taken
out but I felt like it probably would
come back down and either our to our one
might be imply on the open
and then we would go from there but the
point was this thing is extremely
oversold came out with news which was
verified by Reuters and some of the big
players big news organizations that this
email was real and so understand the
mindset people are just the stock is
like you know it's gone from 280 to 250
and then they sell stock at 243 then it
drops the 220 and then it closes below
200 and you're just seeing analysts
after analysts jump ship jump ship
people are panicking they're getting out
and when that happens you generally see
these really large bounces I'm actually
even surprised today it ended up losing
you know what we're doing this writer
and that's probably gonna close in the
mid-19th century and into 20 at which
point I'll make some more judgment
adjustments on the on the options trade
I should say this morning we did take
off half of the 205 short that we put on
the hedge a when it flushed down on the
open below 194 and we are you know we're
gonna continue to maintain a bullish a
bullish stance as long as it continues
to make higher lows I hope you learned
something here the basic concept is when
a downtrend accelerates we sell puts 5
to 10 percent below where the its
accelerated over a few days we buy calls
generally 5 to 10 percent above where it
is and that accelerated and then we we
look to go at least a week one to two
weeks out to give it a chance to kind of
reverse and if we capture that quick 5%
pop on the day we put on the options
we'll look to hedge off 20% it goes up
another 5% will hydro up another 20% and
then we'll kind of sit on our hands and
see how much upside we can capture in
the bounce