Tesla Inc. (NASDAQ: TSLA) has been on a steep downtrend since mid-December, leaving investors questioning when the stock will find a bottom. However, a significant uptick on March 12, following a key partnership announcement with Baidu (NASDAQ: BIDU) in China, has sparked discussions about whether it’s time to start building a long position. But is the worst over for Tesla, or are there still bearish signals lurking in the options market?
Tesla’s Put-Call Ratio: A Key Indicator Still Showing Bearish Signs
One of the most effective tools for gauging sentiment in Tesla’s stock is its put-call ratio. Historically, local minima in the put-call ratio at extreme levels have signaled upcoming declines in Tesla’s stock price. This was evident in December when the put-call ratio reached a low, triggering a sharp sell-off.
Currently, the put-call ratio is rising rapidly, yet it remains only about halfway up its historical range. This suggests that Tesla is still in a sell-signal phase and has not yet reached a level where a buy signal could be triggered. For investors looking to enter a long position, it would be prudent to wait until the put-call ratio peaks and begins to decline, mirroring past bullish reversals.
Implied Volatility and Market Panic: A Potential Turning Point
Another important metric for determining potential reversals is implied volatility (IV). When panic sets in among traders, IV spikes, causing options to become significantly more expensive. This phenomenon was evident during Tesla’s previous major downturn from April 2022 through early 2023.
At that time, Tesla’s implied volatility surged to 100%, coinciding with a bottom in the stock price. As IV declined and returned to a more normalized range between 50% and 80%, Tesla began a strong upward rally. This pattern suggests that monitoring implied volatility can serve as a leading indicator for potential turning points.
What’s Next for Tesla?
While Tesla’s recent rally on March 12 is encouraging, both the put-call ratio and implied volatility suggest that the stock has not yet fully bottomed. A definitive buy signal would require the put-call ratio to peak and begin declining, coupled with a spike in implied volatility that subsequently retreats.
For now, traders and investors should keep a close eye on these indicators, as they may provide the clearest signals for when Tesla is ready for a sustained upward move. With continued developments in China and broader market trends playing a role, Tesla’s next big move could be just around the corner.
