After the US election, the rise of Tesla, Inc. (TSLA.US) is receding. Traders are considering bearish put options to hedge against market selling.

As the stock price of electric car manufacturer Tesla, Inc. (TSLA.US) quickly retreated after a surge following the US election, some market observers have found that closing out trades in Tesla, Inc. could provide a way to hedge against market sell-offs, as well as a profitable trading opportunity. The premise is simple. Despite recent drops, Tesla, Inc.'s stock price is still among the highest relative to expected earnings compared to other large tech companies, indicating that it still has room for further decline. Additionally, the hope placed in Trump's return to the White House and Musk's newfound political clout paving the way for Tesla, Inc.'s ambition to manufacture fully autonomous driving cars led to a surge in Tesla, Inc.'s stock price, which detached from its fundamentals. Michael Purves, CEO of Tallbacken Capital Advisors, sees this as a signal to buy bearish options spreads on Tesla, Inc. He mentioned buying put options with a strike price of $300 and selling put options with a strike price of $250, which will expire in May. Earlier this month, implied volatility fell to the lower end of the past year's range, lowering the cost of option protection, especially for those using the strategy of selling lower strike price options to offset some of the total cost. "While this is a direct directional trade, we also think of it as a quasi-market hedge," Purves stated. He pointed out that if the stock market undergoes a sell-off, stocks like Tesla, Inc., which are driven by momentum and emotion, will be heavily sold off. However, he added, "if the market continues to range-bound or move higher, this trade still offers good risk-reward." Tesla, Inc. currently has a forward P/E ratio of 109 times, while the average P/E ratio for the Bloomberg US Big Seven Price Return Index is approximately 30 times, and the average P/E ratio for the S&P 500 Index is 22 times. But this is not the only negative factor for Tesla, Inc., Purves pointed out. The stock has also shown negative signals on technical indicators, with a 6.3% decline on Tuesday, marking the fifth consecutive trading day of decline, breaking below the key 100-day moving average. After betting that the stock would benefit from Trump's re-election, option traders have become less optimistic. The premium of one-month call options relative to put options disappeared for the first time since the US election. Over the past few days, volatility has started to rise after steadily declining since early in the year, indicating that traders are not only no longer buying call options but are also willing to pay higher prices for contracts to prevent further declines. Since reaching historic highs in mid-December last year, the stock price of this electric car manufacturer has dropped by 32%, with a market value evaporating by approximately $484 billion. Additionally, in recent weeks, negative news surrounding the company has continued to emerge, with weak fourth-quarter performance disclosed at the end of last month, followed by a sharp drop in sales data in Europe, China, and even California, drawing market attention.