Tesla lovers have a lot to be happy about. Shares surged 36% last week. That marked the top of a 400% rally since June!
Tesla bulls expect a perpetual uptrend.
Even major news outlets such as Barrons and Forbes are jumping on the bandwagon with huge price targets. Thats because there are rumors about Google buying out Tesla:
Im going to stay out of the Tesla mania for now. I have my sights set on an easier way to make money off the rumor mill.
And thats by betting against one of Wall Streets favorite stocks: Googles parent company, Alphabet Inc. (Nasdaq: GOOGL).
Investors banking on a deal between Tesla and Google have the wrong idea.
One reliable indicator tells me Google is overpriced.
The black line is Googles stock price.
The blue line is its 200-day moving average (MA), the average of the stocks price over the most recent 200 days.
Investors use the 200-day moving average to determine trend strength.
The over/under (O/U) is the red line, and it shows the percentage the stock price is trading above or below its 200-day MA.
When the O/U is high, the stocks potential return over the coming weeks is low.
When the O/U is low, the stocks potential return over the coming weeks is high.
The O/U for Google is high right now.
The last six times Google traded this far above its 200-day moving average, it went on to fall an average of 14%.
Rumors about Google buying up Tesla will lead investors into Googles stock at the wrong time.
The stock is overpriced in the near term. The reward is not worth the risk.
But you can use the O/U indicator to avoid making a bad buy.
Or, even better, profit from Googles decline. Let me show you how.
I see shares falling 14% by May.
I dont recommend you short the stock. Im seeing a short-term drop.
The best way to profit off that is by buying put options on Google.
A put option gains value when the underlying stock drops.
A near-the-money April put on Google will cost about $5,000.
And since options provide leverage, youd have the chance to turn that $5,000 into $10,000 or more … in two months!
The risk of loss in an option is limited to the amount paid to purchase the option in this case, $5,000.
Options are not for everyone.
But if youre looking for a way to make big, fast gains, dont be intimidated by options.
The lingo is a bit different from stocks, but making trades is just as simple.
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