Potential signal:
If TSLA crosses $446, I am long. Stop at $433, target of $478.
The Tesla market initially gapped lower to kick off Thursday, but has also seen a bit of buying later in the day.
- The Tesla market initially gapped lower to kick off Thursday, but has started to show signs of resiliency near the $425 level.
- The 50-day EMA sits above near the $444 level and could offer a short-term barrier.
- That being said, this is a market that I think is essentially in no man’s land until we get to the earnings call on the 28th.
- I think we probably favor the upside overall, but really at this juncture, I think it’s going to be very difficult for the Tesla market to make massive moves.
A Mechanical Floor and the Gamma Flip
I do think it favors the upside, and when you look in the options market, there is a huge cluster of puts just above the $400 level. Without going too far into the weeds, when dealers are long gamma near a support level, they have to buy stock as the price drops to maintain a delta-neutral book. In other words, this creates a bit of a mechanical floor here and then offers a bit of a bounce. This is actually why you see large round numbers sometimes behave the way they are.
The zero gamma or the flip level is a little closer to right around $443, maybe just below the 50-day EMA. The market will have to deal with dealers switching to short gamma, meaning that they will accelerate the market, and really, at that point, the whole thing will flip positive.
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I would anticipate that being a very real possibility just based on the trend. As things stand right now, we are a little bit neutral, and we are heading into non-farm payrolls, so that is something worth watching. That will cause volatility, but ripping above the 50-day EMA opens up $470 and then eventually the $500 level, where I think there would be a lot of options action as well.
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