- Tesla closes up at the end of a volatile Monday.
- TSLA stock had dropped to $708 straight from the open.
- TSLA seeing large options volume with options expiry due on Friday.
Tesla stock was jumpy straight from the open on Monday with the stock dumping sharply to $708, having opened at $740. The reason appears to have been options-related with market makers supposedly selling a large slew of options contracts as options expiry approaches this Friday. Friday, September 17, sees a quadruple witching, when four different derivative contracts expire simultaneously. These are stock options, index options, stock futures and index futures. This can lead to great intraday volatility, especially on Friday, with some wild swings as market makers look to hedge or flatten their positions ahead of the expiry. See an explanation of quadruple witching here and how it may impact equity markets.
Tesla is a perfect storm for quadruple witching as it is a member of the S&P 500 Index, which will see futures and options expire on the index this Friday as well as options on Tesla. Tesla draws a large interest from retail traders, and so options positions and open interest in TSLA options will be high, potentially leading to increased volatility. Currently, the largest open interest is on the $700 strike expiring this Friday, with $780 the next highest.
As we can see Tesla stock dumped sharply before steadily recovering for the remainder of the day on Monday and actually closing near the high of the day, so overall a bullish sign and keeping our bullish sentiment intact. There was decent newsflow through the day on Tesla stock with Democrats' plan for further tax credits helping the stock, but China took a dim view of the electric vehicle sector, which was not exactly beneficial to Tesla's stock price. China's Information & Technology Minister is reported as saying the country has too many electric vehicle makers and that China will look for consolidation among them.
Tesla key statistics
|Market Cap||$728 billion|
|Enterprise Value||$756 billion|
|Average Wall Street Rating and Price Target||Hold, $704|
Tesla stock forecast
How do we deal with the price spike, which has ruined the chart in terms of sentiment? Given that it was a sharp spike lower, which quickly reversed, we will overlook it for now. Quadruple witching can present large price moves that can be taken advantage of and it would have been nice to have gotten some cheap Tesla stock at $708. The move has put the bullish trend into question though as we did not want to see $740 broken. This was the support level from last week's repeated attempts to get above it and also the short-term moving average. We want Tesla to remain above in order to keep $780 as the short-term target. Any further option-related dips would not want to go as low as $708, so we would chance buying a quick dip to $715 but would not hold the position long. If it is an options-related expiry price spike, then it should correct quickly just like Monday's move.
The call: bullish above $740, neutral from $730 to $700, bearish below $700 with a dip-buying opportunity at $680 as volume is extremely high here.
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