It’s time to close a few trades. Before year-end, we suggested traders close losing trades if they had accumulated capital gains through the year. This process is called tax loss harvesting.
If one has accumulated gains, one can offset gains by crystallizing losses reducing one’s capital gains tax liability. By the same token, we had discussed some trade suggests that were in the black and more or less achieved their objective. In situations like this, it is best to hold off on taking those gains as long as possible to put off paying capital gains taxes as far in the future as possible.
If you participated in the Palo Alto Networks or Tesla traders, we think now is a good time to take your profits and move on the new ideas.
We suggested a bearish risk reversal on PANW, a structure we rarely suggest as it is a synthetic short position with a little room for error. This strategy is appropriate when one thinks a significant selloff is just over the horizon. But there is significant risk in short selling. A squeeze of any kind would put the trade in jeopardy. Fortunately, the trade worked out as planned. PANW has fallen back to the first level of support. The share price may keep falling as the company is not profitable. However, we think there is a decent chance the stock will bounce from here. If that happens, it will represent another opportunity to take a bearish position.
Tesla “has fallen, and it cannot get up.” We suggested selling a call spread as we were looking for lower prices. Those lower prices have manifested, and the trade worked just fine. However, it turns out the strategy employed was not aggressive enough. The optimal strategy would have been a short risk reversal like the one used in the PANW trade. That said, we are happy with the profit earned.
As you can see, the stock price went into a nosedive in Q4 last year. It is not approaching a weak support level and could bounce from there. Like PANW, we will keep an eye out for a bounce in the share price as we do not think the selling is over. But then, we do not believe the selling in the overall market is down yet, either.
The media is getting very negative on Elon Musk as they do not like an outsider playing in their sandbox. One major news outlet published this headline this morning. “Tesla’s Already Bringing Its Gloom Into 2023. Elon Musk Needs to Act Now.” As wealthy people see the balances of their stock accounts fall, sales of high-end items like EVs are sure to get hit. Let’s not forget that the incumbent auto manufacturers are actively rolling out competing products. TSLA recently cut prices in China, and sales in that country will not rebound until the government allows people to move and work freely. Who knows when that will be? As a result, we think there will be little revenue growth in 2023.
If we see an ounce in the stock, we will look for a way to sell it. If it crashes, we will look for a low-risk way to buy it—exciting times for TSLA stock.
