Tesla Inc. (TSLA) has been in a significant downtrend since mid-December, leaving investors wondering whether the bottom is near. However, recent developments, including a partnership with Baidu (BIDU) in China and key indicators from the options market, suggest that Tesla may be approaching a turning point. Could now be the time to build a long position in Tesla?
Tesla’s Put-Call Ratio: A Mixed Signal
One of the first indicators investors should examine when assessing Tesla’s potential reversal is the weighted put-call ratio. Historically, when this ratio hits extreme local minima, it has served as a reliable sell signal. The last such instance in December 2023 accurately predicted Tesla’s subsequent decline.
Currently, Tesla’s put-call ratio is climbing but is only halfway to previous highs. This means the stock is still technically under a sell signal. A definitive buy signal would require the ratio to reach levels seen a year ago and then decline. Until that happens, cautious optimism is warranted.
Implied Volatility: A Key Reversal Indicator?
Another crucial clue comes from implied volatility (IV), which often spikes during panic selling. Looking back at early 2023, Tesla’s stock hit a bottom around the same time IV peaked at 100%. Once the IV retreated to its normal trading range of 50%-80%, Tesla’s stock began its recovery.
Fast forward to now—Tesla’s implied volatility recently surged near 100% before pulling back on March 12, following the Baidu partnership announcement. If IV continues to decline below 80%, it could signal that Tesla’s recent downtrend is ending. A further drop in IV could be the green light for investors to initiate long positions.
Strategic Entry Points for Investors
Given the technical signals, investors looking to establish a long position in Tesla should consider:
- Entering now with a mental stop loss if composite implied volatility rises above 85% again.
- Adding to the position once the put-call ratio confirms a buy signal.
Final Thoughts
With Tesla showing signs of stabilization, the coming weeks will be crucial for traders and long-term investors alike. If the options market aligns with a broader technical reversal, Tesla could be setting up for a sustained rebound.
