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How I Made Money Off Tesla's (NASDAQ: TSLA) Crash

Written by Jason Stutman
Posted March 30, 2018 at 8:00PM

There’s no sugarcoating it: The market has had an ugly, bearish month, with this week being particularly brutal for the tech-heavy NASDAQ.

Since the start of February, the S&P 500 has shed ~7.5%, the Down Jones is down ~8.5%, and the NASDAQ Composite is now at a loss of ~5.6%. After a near decade-long bull market, the cracks are finally beginning to really show.

This week, the NASDAQ took the brunt of the damage, falling ~3.7% from last week’s close.

Yet while most investors were watching their portfolios in agony this week, yours truly was looking at a substantial gain on his brokerage account. Sorry, not sorry.

In all honestly, I do feel a tad bit guilty even putting that out there, but I know I shouldn’t. For one thing, it’s true. For another, I’ve been giving you the advice and tools to do the same thing for the past several months.

In early February, I offered “Five Rules for Investing in a Bear Market.” I wanted to reiterate this message today without being repetitive, so I highly encourage you to click that link and give it a quick read.

Real quick before you do, though, I have one more, “I told you so!”

Well, technically four...

Those of you who have been with us since last summer know there was one stock I’ve been advocating as a short, and aggressively so. Since May of last year, in fact, I’ve written four hit pieces on the company.

This week, the market drove the nail in the coffin...

If you haven’t guessed already, I’m talking about Tesla Inc. (NASDAQ: TSLA).

On May 20, 2017, I sent you an email telling you Tesla was going to crash. I didn’t dance around the subject, either; the article was literally titled “One More Reason Tesla Inc. (NASDAQ: TSLA) is Going to Crash.”

Here’s a chunk of what I told you then, when Tesla was at ~$310 a share:

To put it simply, there’s just too much optimization baked into Tesla’s share price right now, specifically in terms of what the company will someday supposedly become. It’s not just priced to perfection; it’s priced beyond it.

Remember, we're talking about a company that's now $8.2 billion in debt, operates at a -12.5% profit margin, and is valued higher than its next largest competitor (General Motors) despite producing just 5% of its revenue.

Anyone who hasn't fallen under Elon Musk's bizarre little spell knows this is absolutely crazy.

For the speculators, it’s definitely been a nice ride, but now that Tesla is about to be all grown up, the numbers will have to speak for themselves. It's not that the company is going to completely fail, but there's little doubt it will fail to meet expectations.

And when that happens, Tesla's share price will come crashing back down to Earth.

Less than two months later, on July 8, I warned readers again. The title this time was “Why Tesla's (NASDAQ: TSLA) Stock is Going Down.”

This one came after a hard 13% sell-off, but I was convinced it was only the beginning.

Yet even after shedding ~$13 billion in valuation, it's probably safe to say that Tesla is still immensely overvalued. At $47 billion, the company is sandwiched between Ford (NYSE: F) and General Motors (NYSE: GM), making it one of the most valuable automakers in the world, despite producing just 4.5% of Ford's sales at a substantial loss.

If the fundamental numbers aren't enough, Tesla's investors should take note that the company is losing its most valuable weapon: positive press...

It should go without saying that the downside on Tesla right now is enormous, even after its 13% collapse this week. Even if the stars align perfectly, Tesla's shareholders are looking at a fairly valued auto company a decade or two down the line.

If that wasn’t enough, on August 26, I shared with readers “5 Major Risks Facing Tesla (NASDAQ: TSLA) Shareholders Today.”

And early last month, I lambasted Tesla’s darling CEO Elon Musk for buying his own snake oil and agreeing to a performance-based compensation package (which I deviously envision now has him thumb-in-month, curled up in a fetal position).

As much as that may sound like hyperbole, it’s not really a stretch. Tesla has shed 16.9% of its value in the last five days of trading alone and has collapsed $15 billion since February. Given Elon’s 20% stake in the company, that means he’s lost $3 billion in net worth.

If that’s not enough to ruin Elon’s day, his compensation package is tied to 12 milestones, each of which requires an operational milestone (revenue based), plus a cumulative market cap milestone.

And here’s where it really hurts: The first and lowest market cap milestone is at $100 billion. That might have looked obtainable to Elon when the stock was worth $59 billion, but now that it’s valued at $42 billion, the prospects seem a lot dimmer.

As much as I could say, “I hate to rub it in,” I actually don’t. This is karma, and I love it.

So let’s take a moment to laugh at Elon Musk’s pompous taunting of shorts (and the lack of love I got for this Twitter comment) one year ago...

Let's also take the opportunity remind ourselves that even in bear markets, you can make money hand over first. Personally, I made a killing off a bundle of put options this week following my conviction, and I hope at least some of you heeded my warnings on Tesla to do the same or, at the very least, sold your shares before it was too late.

Of course, I'm sure not all of you understand how to best take advantage of options contracts or even how to trade them, so if you're looking for additional advice on that market strategy, I'll point you in the direction of my colleague Brit Ryle.

Brit has made a killing off options for his readers this month. In fact, I'm looking at his portfolio right now, and I don't see a single losing trade for March.

That includes an 88% return on Facebook and a 175% gain off Twitter, each within the span of one week. All while the average investor is taking a dive.

For those of you seeking more information on Brit and his market-tested options strategy, I would highly encourage you to follow this link.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.


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