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It started Tuesday afternoon with Elon Musk tweeting about taking Tesla private at $420 a share.
And then the shares were halted after surging 7.4% on the day. Then the CEO released a blog post expanding on his deliberations, which you can read here.
What to do now? Let us explore the legal inside information that can help you trade Tesla if you desire to do so.
Chart
Please click here for the annotated chart of Tesla TSLA, +10.99% Note the following from the chart:
• The chart shows the VUD indicator. This is the most sensitive indicator of net supply and demand in real time. The indicator is positive but less than would have been expected. The interpretation is two-fold. First, there are not many believers in the transaction actually happening. Second, short-sellers, who bet on a decline in the share price, have not covered their positions during this rise.
• Based on the latest information available, 29% of shares outstanding have been sold short. In our analysis, the actual number is likely higher.
• If a short squeeze starts, meaning short-sellers would have to cover their positions by buying the stock, the stock could rocket toward $420 long before any transaction is finalized.
• There obviously is high risk in buying the stock now. The chart shows support points. Stops can be put below these support points.
• It is advisable to put stops in tranches. We are providing to The Arora Report subscribers the exact size of tranches and stop zones.
• Since the stock can be halted or gap down on the next day, stop loss orders may not protect you. For this reason, stops should be only your second line of defense. The first line of defense is the position size. Another way to protect yourself is to buy put options. However, this may not be practical for many given the high cost of put options. One way to reduce the cost of put options is to buy put spreads.
• The overall risk-reward in this trade is attractive, but this is suitable only for aggressive investors as the risk of loss is high.
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Money flows give you an edge. To see segmented money flows leading to this buyout development, please see “Money flows of 11 popular tech stocks show Alphabet and Apple getting stronger.” After the tweet from Musk, smart money flows have been neutral and momo money flows have been positive.
As Tesla’s stock price moves around, the principles described here will remain applicable. This is the legal insider information that can help you trade Tesla.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.