My top stock picks for 2023 include this overvalued stock that’s primed to drop. If you want to know how to trade options and want to know my options trading strategies, I’ll show you how I chose this stock to buy put options on. This is the perfect stock to swing trade options, and it’s one of the top stock picks for shorting. If you want options trading explained, this options trading for beginners video will show you how to find the top stock for options trading. Options are the best way to leverage downturns in the stock market, and the top stocks this week have the best chance of falling as the market goes down. Do I regret buying this stock option? Not at all, and here’s why!
Hi, guys. It’s Stock Curry. And you’ve heard me talk about how the economy is really strong right now, but it’s starting to weaken. I also told you that there are ways to make money as the economy goes down. Today, I’ve got a trade idea for you. I’m going to show you what I bought. First, let’s do a quick market recap to look at where the economy is. Then let’s get into the trade idea.
Yesterday, we talked about how the United Auto Workers are on strike and the striking unions are now impacting the economy at a level not seen in decades. So far, the United Auto Workers stoppage has impacted just a small portion of the workforce with limited implications for the broader economy. But while the immediate impact of the auto workers strike will be limited, that will change if the strike broadens and is prolonged. You see, the UAW has taken a somewhat novel approach to this walkout, targeting just three factories and involving less than one tenth of the workers of the big three automakers membership.
However, if things heat up and turn into an all out strike, bringing into play the 146,000 union members at Ford, GM and Stellantis, that could change things. In that case, Shepardson sees a potential 1.7% quarterly hit to GDP at a time when economists still fear that the US could tip into recession in the coming months, if we’re not already in one. You see, auto production accounts for 2.9% of our GDP. And that’s why there’s so much focus on trying to get this resolved quickly. That’s why the White House is now flying to Detroit, trying to get this resolved. But sometimes these strikes don’t get resolved quickly. Sometimes they can last for months.
Take the writers union strike, for example, which has been going on for a while. Even though talks are going to resume, it doesn’t look like this is going to get resolved anytime soon. This is the 139th day of the strike, which began on May 2nd. As a result of the strike, production companies have taken a financial blow. Warner Brothers Discovery warned investors last week of a $300 Million to $500 million hit to its earnings due to the ongoing strikes. So these strikes are having a very serious impact on the economy, and that impact is hurting businesses, which in turn is going to have a downward impact on the stock market. But it’s not just strikes that are hurting the economy and the stock market. Americans plan to keep cutting back on spending through the holidays.
The vast majority of adults, 92%, have reduced their spending over the past six months. And looking ahead to the all important holiday shopping season, there’s a warning for retailers. More than three quarters of all US adults, 76%, plan to cut back on spending. And this is going to have serious implications for retailers across the board from everybody from Home Depot to Target to Amazon as consumer spending continues to go down. And keep in mind, consumer spending is over 30% of the US economy. As this continues to go down, this is going to continue to cause the economy to get worse and it’s also going to put downward pressure on stock valuations, which in turn should put downward pressure on stock prices.
Now, despite the most recent downturn in the economy, so far the Fed has not gotten the economy that it expected. While leading indicators do show that the economy has started to go down, the official government data, which is backward looking, shows that the economy is still very resilient and quite strong. Now inflation has started to come down despite the uptick over the past two months, which is why a rate increase at this week’s meeting seems so unlikely. But the Fed’s updated projections will probably show at least one last quarter percent point hike to the Fed’s target range on interest rates by the end of this year, most likely at the next meeting. And considering how much stronger the economy has been than the Fed thought, policymakers might also forecast fewer rate cuts next year than they previously saw.
Now, if the stock market believes the Fed – and that’s a big if – that could cause the stock market to sell off on Wednesday and Thursday. But if the stock market continues to do what they’ve been doing all year long, which is ignore the Fed or think that the Fed is lying, then we could see the stock market continue to go up. However, especially over August and September, we’ve already seen quite a few cracks to the stock market and we are seeing the stock market start to go down last month and this month.
So how do we play this? How do we make money? Now there’s over 9,000 stocks in the stock market as well as hundreds of ETFs. What do we do? Well, I told you that as the stock market goes down, we can make money by shorting the stock market or buying put options. Or a more sophisticated way would be selling call options, whether selling credit call spreads or covered calls. There are ways to sell options also to make money as the market goes down. But whatever you decide to do, the most important thing is figuring out what asset to actually do it on. Do we do it on an individual stock? Do we do it on the overall market? Do we maybe go long on the VIX? What do we do? Now I want to be clear – this is not financial advice. This is not a recommendation to buy, sell or hold any asset. I’m just telling you what I am doing. I could be wrong.
What I personally like to do is I like to look for a stock that is trending downward, that is already going down, where a downturn in the overall stock market might cause that downward stock to actually accelerate the rate at which it falls. And I happen to have found one stock that has been in a long term downtrend since November of 2021. And that particular stock is Tesla. If you look at this blue line that’s going downward on this Tesla chart, you’re going to see that Tesla bounced off of this blue line five times over the past two years. And each of the past four times Tesla stock dropped pretty significantly and pretty quickly. We are now at that line for the fifth time. And just on Monday, Tesla bounced off of that line and fell about 3%. Now, based upon the history of Tesla, it should continue to go down and fall down to at least $200 per share.
For that particular reason, I bought a put option on Tesla. Now it’s very important to understand this is a swing trade. You have to give this time to play out. This most likely is going to take a month or two to actually play out. And that’s why I bought the October put options on Tesla, although the January put options would be a much better play if you can’t afford them. The thing about Tesla is that Tesla is already seeing a decrease in its margins. They just cut the price of their vehicles in China in half, and that already caused a serious hit to their margins two quarters ago, and it is expected to cause another serious hit to their margins at their upcoming earnings in October. Their October earnings should take place sometime around October 19th, with the October put options expiring on October 20th, just in time to include the next earnings.
Now, the problem with playing the October put options is we’re going to run into some time decay or theta decay. And that’s why those January or even November put options would be much better than doing the October put options. But personally, I didn’t want to go any sooner than October because I do know this is going to take time to play out. This is a swing trade, not a day trade. We don’t know what Tesla’s going to do day to day. All I know is based upon the fact that the stock market overall historically falls in September, based upon the fact that the economy is slowing down, based upon the fact that the Fed is expected to be a little bit more hawkish than the market is currently pricing in, based upon the fact that Tesla technically is at a top and historically will fall once it reaches the point that it hit at its high on Friday. Based upon the fact of all of this, based upon the fundamentals, the fact that Tesla’s margins are decreasing and they’re about to get worse, based upon the fact that Tesla’s forward PE ratio is extremely elevated, even higher than Nvidia’s, based upon all of this combined, I’m looking at shorting Tesla stock with an October put option, but preferably a January put option.
And that’s what I’m talking about when I say you’ve got 9,000 stocks to look out. We know the overall market is expected to go down. Now, who knows what it will do. It’s just expected to go down. And based upon that, I’m combining that fact on the overall market with the individual bearish facts of Tesla and the technicals and fundamentals of Tesla all combined together, give me a much better chance of this play actually working out than if I had just bought some other stock. For example, take Nvidia, which is still quite bullish. I wouldn’t want to short Nvidia because it’s still going up, it’s still bullish. That and the PE ratio is much lower than it is on Tesla also. So it’s really important to handpick the stock that you want to short if you do want to short, and not just randomly just buy stocks because you feel like they’re overvalued. You’ve really got to look at the technicals, really got to look at the fundamentals, and really look for something that’s in a downtrend like Tesla is that gives you the best chance of making money with a put option. So that’s what I’m doing.
Again, not financial advice. I’m not recommending that you go buy put options on Tesla. I’m just telling you what I personally am doing. Let me know what you think about this Tesla put option play. Let me know if you think it’s a good idea or a bad idea. If you think Tesla’s just going to keep going up, if you think Tesla is in fact going to go down like it did the last four times, let me know in the comments below. What do you think? Are you joining me? Are you staying away doing the opposite of me? What are you doing? Let me know in the comments below. I’m really curious to see what your thoughts.