This morning I missed out on buying on the $135 dip.
I had everything set up and I thought I was prepared. I noticed pre-market was down, and was ready to do some buying. However, when the stock started to dip and options premiums tanked, I hesitated a bit. I had my order page open, and seeing the option premiums tank ($5, $4.8, $4.6, $4.4, $4.2) I figured I should try to get a good deal and I placed an order for $4.0 for Sep13 150s (originally I was planning for $4.4). Right after I placed it the stock started to recover from touching $135 and premiums started to shoot up. I felt disappointed that I missed the opportunity. I realized I should have picked a price earlier and placed a limit order prior to market open, or spread out my order into 2 or 3 orders with various limit prices. It's just the dip to $135 happen so quick and it was gone. (I did place a small limit order before market open in a smaller account I have and picked up some Sep13 150 calls for $4.2 so I guess I didn't miss out on the dip completely).
So, I spent the morning lamenting over a missed opportunity. I had fully expected the stock to quickly jump into the low 140s and end the day above $142. However, the overall market had a bad day, and TSLA had a hard time staying above $140. Toward the end of the day it felt like it was going to test $138 again but ended the day closer to $140.
I noticed a lot of the financial headlines were about gloom and doom (ie., the market is collapsing, etc). At first I didn't pay much attention thinking it was all FUD. But I did some more reading and got a bit concerned. I think I had thought the economy/market mood would remain stable in the coming weeks. But it seems like there's some risk of a market correction. Most are pointing to Walmart, Macy's, and Cisco disappointing in earnings. It's not that they had terrible earnings; they were actually ok. It's just that they aren't growing as fast as they should, and that's disappointing. It reminds me a bit about the solar companies reporting okay earnings but the market not appreciating it because it was expecting better/faster growth.
So, earlier this morning I was kicking myself for missing the $135 dip. And now, I don't know. If the overall market turns bearish during a major correction, I'm not sure what the effect will be on TSLA stock. On one hand, I think it could present some great buying opportunities but on the other hand it's difficult to know when market mood will turn bullish. Also, it's tough to know how much, if any, TSLA will be affected by the overall market. During the last minor market correction, we saw TSLA performing very well. It's just that if this market correction is more major, I'm thinking it could affect TSLA's strong uptrend movement.
In my earlier posts, I've shared how I see TSLA continuing its uptrend assuming the economy doesn't tank and Tesla continues to execute. Now, today we get to see those risks a bit more clearly. It's also not just about the economy not tanking, but it's also about the market not sinking into a big sell-off even when the economy is alright (maybe not stellar though). It's a risk because sometimes fear begets fear and strange things happen. Eventually, things turn around but it's difficult to pinpoint the exact timing. There are just too many variables.
So now this fear in the market and possible looming correction decreases the odds of success for my trade yesterday. Whereas I was forecasting 90% odds of breaking even or a profit (if I could exit correctly), now I think the odds are somewhat lower. Maybe 70-80% (if I can exit correctly). If I don't exit correctly, then maybe 50-60%.
Also, there's the risk of Tesla not executing as well. I think I glossed over this risk, but it's something to be considered. If a major supplier to Tesla experiencing a catastrophe (ie., fire, earthquake, flood, etc) and Tesla isn't able to replace those parts, it could halt production of the Model S line. This would not be good. They wouldn't be able to produce the cars they've guided for, and the next quarterly report (and maybe the following one as well) would not look good. I'm sure they would recover, but in the near-term it wouldn't be good for TSLA. I don't view this as a super large risk to keep me up at night, but it's a risk that needs to be considered especially when making short-term trades. That's why longer-term trades (ie., stock or LEAPs) have a much larger safety of margin. Since they're so far out (over a year out or longer) you can wait out market corrections and execution challenges. You're more betting on the long-term execution of the company, and that's a much safer play.
Anyway, my wife now wants us to sell our our Sep13 150 calls. She's read the headlines and is scared. I'm more the pondering type, and will spend the rest of the day researching and thinking deeply on things. Maybe a long evening walk will help.
Part of me thinks TSLA is strong enough to weather a market correction, but another part of me think if the market correction is severe enough it will affect TSLA and could keep it beat down a bit in the near-term. Another part of me is wondering how severe is this market correction going to be, and also is it just hyped up or is it really looming. These are not easy questions to answer.
And then, there's tomorrow. How will TSLA perform, and can it hold that 138 resistance level? If it breaks down under 138 will it take the fears of the overall market and push it much lower? Or will it hold strong and can we see it consolidate in the 140s?
Earlier this morning I was very bullish on my yesterday's purchase. I still think it's a decent investment but I see significant risks that have increased since yesterday. If anything, if I'm tempted to buy more I might lean toward further out option calls (ie., Dec or Jan) so I can have a greater margin of safety. But I'll be gaining more margin of safety in exchange for less potential reward.
But one thing I'm learning is to adapt quickly.
I think we're kind of in limbo right now, and it might depend on what the overall market decides to do and if there's a major correction or not. I'm just reminding myself that sentiment/mood can be fickle both ways. If Tesla goes up 5-10 points tomorrow, then people will likely think it's back on track and will soon forget this dip ever happened (ie., do you remember that distant Goldman dip once upon a time?). If Tesla sinks 5-10 points tomorrow, people will think it's falling with no end or bottom. It's funny how mood/sentiment can affect things so much.
I'm not saying that TSLA will go up or down 5-10 points tomorrow. I'm just illustrating how fickle mood can be and how it can be reversed in either direction. I think that applies to the overall market as well. It can be humbling to realize that we have such little control over outcomes. But I do have control over my thought processes, what I research, the questions I ask, and how I approach my decisions. So for me, I just keep trying to improve my decision-making processes and hopefully that will make me a better investor over time.
