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CEO Creates Chaos

Hey 5-Star Trader,

“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works, and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

For “Tuesday Trade” this week, I want to outline my trade in Tesla (TSLA).

Each trader has certain tickers that become some of their favorites to trade. For me, one of those tickers is Tesla. So, when Tesla hit a new all-time high of $1,200, I knew I had to start looking for setups.

After reaching its new all-time high near the beginning of this month, TSLA was making a lot of news matched with positive market sentiment. That, coupled with the fact that it was in 30-minute and 78-minute squeezes, made me confident that Tesla’s price could climb even higher so I went in —  SELL -2 VERTICAL TSLA 100 (Weeklys) 12 NOV 21 1200/1195 PUT @2.40 limit order (LMT).

Admittedly, this was a bullish trade in nature because I was targeting even newer highs. Because of this, I adjusted my risk to be approximately 1.5% of my total account.

Two days into my trade and Tesla was acting quiet. It seemed like the news around it had died down, but it still had a 15-minute squeeze and was holding above $1,200. Nothing about that was too concerning to me so I left my trade as it was going into the weekend.

Then something unexpected happened…

Over the weekend, Tesla CEO Elon Musk tweeted a poll asking his audience if they were in favor of him selling 10% of his shares in the company. With the majority agreeing, Musk did just that, which sent Tesla stock plummeting by the Monday market open. With not much choice left, I held my position to see if Tesla could shake this news and recover.

Two days after the huge plummet, it was clear that my setup in Tesla could not recover and I had to bow out for a loss — BUY +2 VERTICAL TSLA 100 (Weeklys) 12 NOV 21 1200/1195 PUT @4.50 LMT.

While it would have been impossible to predict that Musk was going to sell 10% of his shares over a weekend, I did learn a valuable lesson.

Trading is not just about the company brand or performance. Major influences can also come from those who are in charge. While this situation won’t stop me from trading Tesla in the future, I will certainly try to be more aware of Elon’s twitter chatter!

-Danielle =)

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