Cashing In On Tesla’s Bounce

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The Trader Versus The Intelligent Investor

One of the more amusing posts on X after shares of Elon Musk’s other business Tesla (TSLA) spiked after hours yesterday was this one, picturing someone throwing Benjamin Graham’s classic book, The Intelligent Investor, in the trash. 

$TSLA +7%

— Mads Capital (@MadsCapital) April 23, 2024

Of course, Warren Buffett’s mentor Graham wouldn’t have been surprised by Tesla’s spike after missing its earnings estimates. As he famously wrote, “In the short term, the market is a voting machine; in the long term, it’s a weighing machine”. In the long term, the market will weigh Tesla’s earnings and various valuation metrics, but in the short term, the market is voting on the stock’s prospects. So when you trade, you’ve got to think about how the market will vote. 

Thinking About How The Market Will Vote

I did that yesterday, though, to be fair, there was a bit of luck involved. As I watched Arsenal blow out Chelsea in yesterday’s Premier League match, I remembered Tesla was reporting earnings after the close. I also remembered these two Zero Hedge posts about the stock. 

Last two times TSLA dropped seven straight days, it ripped back (Sep 2018, +50% in next two months; Dec 2022, +100% in next two months)

— zerohedge (@zerohedge) April 22, 2024

With that in mind, I placed a bullish options trade on TSLA just before the market closed. 

Structuring The Trade

Here’s the part where luck wasn’t involved. I knew that options were pricing in a move of about 9% in either direction for TSLA. I also knew that the odds of my trade working were probably close to 50% (ideally slightly higher). With both of those facts in mind, I decided to go a bit out-of-the-money to give myself a shot at a >100% gain if the trade worked. That way, even if this sort of trade only works about half the time, you’re setting yourself up to profit over time. 

With TSLA trading at about $144, I opened a vertical spread expiring on Friday, buying the $152.50 strike calls and selling the $155 strike calls for a net debit of $0.75. The max gain on that spread would have been $2.50 if TSLA was trading for more than $155 at Friday’s close, but I decided to lock in a smaller profit instead today. I just exited that spread this morning at $2.05, for a profit of 173% overnight. 

Looking For The Next Winner? 

These sorts of earnings trades can be hit-or-miss, but our core strategy in the Portfolio Armor Substack–buying equal dollar amounts of our top ten names, putting 15%-20% trailing stops on them, and then replacing them as we get stopped out with new top names–has been pretty consistent so far. As you can see below, since I started the trading Substack, our top ten names have outperformed the market 

Top Names Performance Data Since 12/29/2022

This was when we first started sharing our weekly top names cohorts in the Portfolio Armor Substack. As you can see below, since I started the Portfolio Armor Substack, our top ten names have outperformed the market by 21.82% over the next six months, versus 11.8% for SPY. 

Starting DatePortfolio Armor 6-Month PerformanceSPY 6-Month Performance
December 29, 202230.94%15.57%
January 5, 202339.55%18.14%
January 12, 202330.05%13.65%
January 19, 202347.63%18.47%
January 26, 202334.96%13.83%
February 2, 20232.54%9.24%
February 9, 20234.70%10.75%
February 16, 202314.18%8.92%
February 23, 202330.43%11.84%
March 2, 202317.95%14.72%
March 9, 202323.87%15.09%
March 16, 20235.30%13.62%
March 23, 202310.69%10.27%
March 30, 20239.00%6.66%
April 6, 202316.57%5.74%
April 13, 2023-1.79%5.12%
April 20, 20236.88%3.01%
April 27, 20239.45%0.31%
May 4, 202313.28%8.08%
May 11, 20238.52%7.69%
May 18, 20239.91%8.31%
May 25, 2023-2.77%10.61%
June 1, 2023-6.11%9.63%
June 8, 202312.72%8.02%
June 15, 202319.14%7.25%
June 22, 20239.37%9.34%
June 29, 202311.32%9.32%
July 6, 2023-0.97%7.24%
July 13, 2023-0.61%6.84%
July 20, 2023-4.82%7.51%
July 27, 20234.78%8.54%
August 3, 202320.98%10.98%
August 10, 202335.94%13.26%
August 17, 202389.37%15.37%
August 24, 202362.22%17.13%
August 31, 202330.72%13.68%
September 7, 202344.34%16.61%
September 14, 202333.97%15.22%
September 21, 202351.45%21.54%
September 28, 202338.51%22.56%
October 5, 202361.35%22.62%
October 12, 202329.96%18.28%
October 19, 202332.93%16.59%

So Portfolio Armor’s top ten names averaged 21.82% over these 43 6-month periods, versus SPY’s average of 11.80%.

If you want to stay in touch.

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we’re using that for our occasional emails now).