Here's When TSLA's Crash Will Finally Stop

Last week we talked about Benzinga's proprietary "BBP" indicator, which stands for the Bull/Bear Pivot level and how it helps traders know where a stock is headed next.

The BBP level examines the option positioning for any ticker and determines the exact point (or price) where the calls are in control above that level, or the puts are in control below that level.

It essentially notifies traders who have access to it, before the market opens every day, at what price do we need to be bullish above and at what price we need to be bearish below.

Today, let's take a look at what the BBP level tells us about Tesla Inc.'s (NASDAQ:TSLA) recent woes and where the stock is headed next.

Notional Gamma Positioning for TSLA

Looking at the chart below, we see the pink bars on the left (notional gamma for puts) and the blue bars on the right (notional gamma for calls).

If you start from the top of the chart, you can see the blue bars (calls) have a mild amount of control until we hit 300. That 300 strike is our BBP for $TSLA right now. This means we are below the BBP level.

When a ticker is below the BBP level, puts are in control.

When puts are in control, it generally translates into the following key points:

1. Volatility is more likely to express itself
2. Dealers will trade with the market, meaning if the market goes down, dealers will sell, and if the market goes up, dealers will buy (*we cover this extensively in the Benzinga Options School lessons regarding option dealer and market maker hedging)
3. Because of the above two points, stops have to be larger
4. Most importantly, if we're long TSLA shares, we should start hedging while below the BBP level
5. Another key point is we do not look for longer dated bullish exposure (shares or options) while below the BBP level

Hence, while TSLA is below the BBP level, traders should avoid long calls/call spreads or buying shares.

That's why I'm not ready to call a bottom in $TSLA. This is very important as it showcases the importance of knowing the BBP level for each ticker you trade and what that is each day.

BBP levels can change as the market moves. If the market goes lower, BBP's can slide lower as option positioning changes. As the market moves upward, that BBP level likely will climb higher as the shuffling of positions will determine where and at what price puts will gain control below and calls maintain control above.

This is why access to the BBP level every day is so important. It determines whether you're bullish or bearish, whether you need to hedge below the BBP or maintain long exposure.

How has $TSLA fared while below our BBP level of $300?

5-minute TSLA chart

Looking at the chart above, you can see that since TSLA has been below the $300 BBP level, it's been mostly bearish price action. I've been telling my Benzinga Options School and Trading Waves members for over a week now that the BBP level is at $300, and that until we get a daily close above, we avoid looking for bullish positions.

We even got a retest last Monday at $300, only to fail to close above it. TSLA has fallen over 12% since. If you had access to the BBP level, you'd have completely avoided any dip buying, and like many of our members/traders, added bearish positions which have profited handsomely since then. If you'd like to learn about what price and when that signal will come, you can do so via becoming a member of the Benzinga Option School or Trading Waves services.

I look forward to seeing you there!

Photo: Shutterstock