TSLA Market Action: 2018 Investor Roundtable

[neroden]

Just don't use acronyms. Too specialized. Doesn't help communicate, only hinders communications.

OTOH, TLAs make typing faster. J/K

 

[brian45011]

I am straight up saying that the word "cash flow" means GAAP "cash flow." Including cash from financing. Because that's what cash flow *means*. If he had meant operating cash flow he would have said it; he can be rather precise sometimes.

Musk has also said that Tesla will not need financing *except regular lines of credit*. Draws on the undrawn portion of the line of credit are valid in order to get positive cash flow. (Though obviously it has no effect on GAAP profit one way or the other; it would have to be used for capex, not for opex.) As of March 31, there's half a billion in undrawn capacity in the main (recourse) Credit Agreement.

Are you/Elon saying "cash flow" includes cash from Financing Activities but not cash used in Investing Activities? What will the Cash Flow Statements at 9/30/18 and 12/31/18 show as " Cash and cash equivalents and restricted cash, end of period"?

 

[MikeC]

And also you offset the time value decay.

He probably doesn’t want to offset time value decay as a put seller. Remember we’re mostly bulls here...

 

[Rarity]

Are you/Elon saying "cash flow" includes cash from Financing Activities but not cash used in Investing Activities? What will the Cash Flow Statements at 9/30/18 and 12/31/18 show as " Cash and cash equivalents and restricted cash, end of period"?

I think Musk simply means the cash on hand will be greater end-of-quarter Q3 than it was end-of-quarter Q2, and that cash on hand will be greater end-of-quarter Q4 than it was end-of-quarter Q3.

 

[Krugerrand]

It's possible based on how impressed Elon was with this structure as stated in his tweet. Perhaps not in it's current configuration, but in some manner as they do own it now (probably) making it another tool to use when required. I wish people would stop calling it a tent because it's anything but. Many companies use these as permanent installations for various usages; just check out their website, you'll be impressed.

First we had the pie quarter, now we have the tent week.

 

[elasalle]

The airflight equipment (along with other German line) was for GF1, not Fremont.



Yeah, but they use 'acquire' when speaking of the purchaser, but 'sold' when speaking of the manufacturer.
For instance, the manufacturer sells the car to a dealer whom the purchaser later acquires it from. So there may be two criteria that apply more to traditional OEMs....

The news was that it was for GF .. but even then I think that there was some speculation that some of it could have gone to Fremont.
Also (IIRC) tent city kinda popped up in Fremont a few weeks after the Cargo plane news ...

 

[neroden]

The BoD has the option of changing the conversion ratio for the Free Conversion Period --At what conversion ratio does the Board of Directors want to announce to induce settlement with shares ? The conversion rate appears to capped at 3.9597 (equivalent to $252.54/share)
TSLA Market Action: 2018 Investor Roundtable

Wow, you are good at finding fine print, Brian -- I gotta hand it to you. Sharp catch. I have been snippy to you in the past, but you are the absolute best fine-print-reader here, and possibly the best I've ever encountered. Serious admiration. I caught the weird fine print in the 2022s, but I missed this bit in the 2019/2021s.

I will lay bets very few of the convertible holders actually read this. Which means that my analysis of *their* behavior remains accurate. And I am quite sure the Chanos types didn't read it either (they seem to write a lot of propaganda, but they don't seem to do much reading) so *their* behavior will be the same as predicted.

However this is basically a flat-out option by Tesla to not pay off the convertible bonds in cash. They can, if they like, make the conversion price $252.54; at that point anyone would convert if the stock was under $252.89 (accounting for the foregone final interest payment). They can do this "for a period of at least 20 days" and then actually turn off the "discount".

I suppose if any short-sellers see this they may try to drive the price below $252.89. That's gonna be damn near impossible to sustain, April dip notwithstanding.

So it's impossible for the short-sellers to starve Tesla of capital; they just haven't realized it yet. Nice work, whoever wrote that prospectus. Musk clearly knows this, and it's information which is available to the public.

I really should have bought some of those bonds.

 

[Krugerrand]

Your welcome. Earned myself my first two disagrees! Now I've finally achieved at least one of every kind. Who would've thunk I'd earn them trying too help someone out though?
Maybe it's MID, maybe it's MANDATORY. maybe it should be MMMD. Regardless, I think you get the point!
There ought to be a sticky somewhere around here listing all the acronyms used so us neophytes stand a chance at keeping up.

Disagrees are like wrinkles; if you don’t have any than you’re either five or not trying hard enough in life.

 

[mongo]

Possibly relevent to recent dip:

Elon's twitter storm regarding TSLA stock is indeed in full swing.

Funny comment:

Marek Cyzio: "My forecast is - it will go down and then it will go up and up and up and up and up."

Elon Musk: "Exactly"

Exciting times ahead.

Twitter

 

[Causalien]

Could you please explain for an options amateur like myself why you’d sell put spreads instead of just selling puts?

Is it because you need less capital?

At any time, the options in your portfolio should be a rolling continuation of an overall strategy depending on the situation. One shot simple directional bets are great for beginners as it is less complex. The selling of put spread is verging a bit more on the complex side as the reasoning behind it is multifold... at least for me.

VOL

Let's first take a look at volatility of TSLA to understand why selling options (selling vol) is viable right now.

Teal line is short term vol. Red line is Long term vol.

The small peaks at the beginning of the graph where vol goes up to 0.5 (50%) are the lead ups to earnings reports.
In April we got the big vol spike where TSLA was shorted to $250. Take a note that in previous quarterly delivery releases, the vol sticks to around 0.4, which is where TSLA stock usually sits when nothing is happening. Stock price falling down usually contributes more to vol increases than stock price shooting up.

So during these volatile times, the best strategies usually involves selling volatilities. Or if you need to make one directional bets, it is better to borrow money and buy stock outright (or short it).

Selling put spreads

The way to harvest vol is by selling options. The way to sell vol while being protected is to sell a put and buy a put further out in strike price.

Let's take an example of Selling 10 puts of strike price $280,ptember 2018 costing $19.10and then buying 10 puts of Strike price $240, September 2018 @ costing $9.60.

(Pink line is price curve at current vol, teal is price curve at 49% vol, Orange is price at 32% vol etc. you get the idea, Each line is -10% vol)

So if you sold this spread, and the stock price sits at the same place as the volatility dies down to 34.23% (the historic low), you could gain $5555. Of course, if you hold it to expiration and the stock price never drops below 280, then you earn $9500. Your maximum cash at risk is $30000, but you also have to consider the weird case where the stock price sits in between 280 and 240 during expiration. You'll be tasked to purchase 1000 tsla stocks at $280 while the $240 put option expires worthless. That is $280 000 of cash capital at risk... Suffice to say that most people who do option spreads do not intend to hold them till expiration. This spread takes advantage of the force behind volatility returning to historic norm in order to help you. While limiting the potential downside.

Selling put

Now let's compare this to selling put outright.

The capital at risk is basically the whole thing. So if you sold 10 put $280 strike, you put $280 000 at risk. The payout is also higher however.

Call spread

Now let's take a look at buying the call Strike 310 and selling the call strike 315

Let's just say that the yellow line represent the net gain/loss at expiration (because it is the same curve). When you buy a short term call spread and structured it in a way that volatility really doesn't matter and the chance where you will be exercised is slim, so you do not need capital prepared in order to purchase stock at $310. Your intention is to hold this to expiration ignoring the volatility in between. This is a good way to bypass volatility during volatile times.

Conclusion

As a recommendation to the forum, I took many aspects into consideration. 1. Most people don't have all these information and 2. I use the most conservative method where capital preservation Is key. Therefore outright selling of put option at this moment is quite risky as most people don't take into consideration what capital is required to get 10 put option assigned to you at strike price of $280. (You need $280 000 cash+margin in your account). Also consider that only about $250 000 cash in your brokerage is protected by SIPC in the states ($100 000 where I live), one should ever only have the insured amount of cash sitting idle to cover the potential of your options getting assigned.

So since harvesting vol (to make vol work for you) is the best position and capital preservation is important, I recommended selling a put spread.

 

[neroden]

Are you/Elon saying "cash flow" includes cash from Financing Activities but not cash used in Investing Activities? What will the Cash Flow Statements at 9/30/18 and 12/31/18 show as " Cash and cash equivalents and restricted cash, end of period"?

No, I'm saying it includes both cash from financing activites and cash used in investing activities.

The 6/30/18 statement will show some number, $X, as "Cash and cash equivalents and restricted cash, end of period".
I believe that the 9/30/18 statement will show a larger cash balance, a number $Y where Y > X.
I believe that the 12/31/18 statement will show a larger cash balance, a number $Z where Z > Y.

I believe this is literally what Tesla means when they say "positive cash flow" for Q3 and Q4.

 

[neroden]

As a recommendation to the forum, I took many aspects into consideration. 1. Most people don't have all these information and 2. I use the most conservative method where capital preservation Is key. Therefore outright selling of put option at this moment is quite risky as most people don't take into consideration what capital is required to get 10 put option assigned to you at strike price of $280. (You need $280 000 cash+margin in your account).

For reference, I agree with what Causalien has said, and I am outright selling puts (in small quantities!) which probably gives some hint as to the order of magnitude of cash + margin-financeable-by-non-TSLA-shares I have.

So since harvesting vol (to make vol work for you) is the best position and capital preservation is important, I recommended selling a put spread.

 

[lklundin]

Note I'm simply trying to guess what the market consensus is made of.

Rather than a consensus, the perception of Tesla is divided into two parallel universes, in the sense that surely only one of them can reflect reality, while the other cannot. Maybe a bit like Schrödinger's Cat or for those into fiction, whether or not that guy in 'Homeland' was really good or bad.

And every time an event occurs that would surely eliminate one of the two parallel universes, we are stuck with yet another episode of the seemingly endless story of the perpetually failing, yet massively successful Tesla.

Let's face it, when Q3 is over and Tesla posts a profit, half of the analysts will go: "Yes, but Tesla pumped their stock and manipulated their accounting - and their weekly 8k rate is not sustainable, and the cars not yet delivered are actually scrap, and next week they will surely file for bankruptcy and that single Tesla accident means we will all die, and mining for lithium kills all the baby seals and deprives depressed people of their medicine, and SEC and OSHA and NTSB and NHTSA need to step in now, before this scandal goes to far"...

So good luck.

 

[Zhelko Dimic]

Nah, meanwhile i'm aware of that and almost used to it. So you are saying, if they deliver only 800.000 cars in 2020 and the Model Y won't be available until mid 2020, that's good enough for you? ;-)

2020 for Model Y? No friggin way...
We'll be lucky with 2021...
Second half of it...
As in Dec...
31st...
And yes, stock is now dirt cheap for that expectation above...

 

[Intl Professor]

TSLA SP is rational only to longs. The long range potential is enormous. Short range trading is beyond comprehension. The explanation of gaming the market with algos is clearly explained above. We can't match it. That's why I am in favor of a minimal tax on each share sold or purchased. That should stop the practice of machine trading and level the playing field for we retail types. But then that assumes rationality in our tax code or rational management by the SEC.

Reality always boxes my ears when I impose rationality on politics. Ad to this we are in the age of fake news. The idea is to get us all to enter the cave of mere appearances—where things can be manipulated—from the reality outside when/where things meant what they are. (Due respect for Socrates' allegory of the cave.)

The really scary part is depending upon a rational voter. In Federalist 51 Madison starts with the proposition "A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions." Unfortunately his auxiliary precautions, our Constitution, has failed since faction, one faction, now prevails. Can we depend on the people? If not, I'm outa here before the Canadians build the wall. Not an advice, but still....

Sorry for such crude tools for making my points—words. On politics and the FUD effect on reality, this is better at making my point, although a bit rational until the end (my long bias, again).

 

[mongo]

Rather than a consensus, the perception of Tesla is divided into two parallel universes, in the sense that surely only one of them can reflect reality, while the other cannot. Maybe a bit like Schrödinger's Cat or for those into fiction, whether or not that guy in 'Homeland' was really good or bad.

And every time an event occurs that would surely eliminate one of the two parallel universes, we are stuck with yet another episode of the seemingly endless story of the perpetually failing, yet massively successful Tesla.

Let's face it, when Q3 is over and Tesla posts a profit, half of the analysts will go: "Yes, but Tesla pumped their stock and manipulated their accounting - and their weekly 8k rate is not sustainable, and the cars not yet delivered are actually scrap, and next week they will surely file for bankruptcy and that single Tesla accident means we will all die, and mining for lithium kills all the baby seals and deprives depressed people of their medicine, and SEC and OSHA and NTSB and NHTSA need to step in now, before this scandal goes to far"...

So good luck.

In other words...

Spoiler: the Chewbacca Defense

Chewbacca defense - Wikipedia
Cochran
...ladies and gentlemen of this supposed jury, I have one final thing I want you to consider. Ladies and gentlemen, this is Chewbacca. Chewbacca is a Wookiee from the planet Kashyyyk. But Chewbacca lives on the planet Endor. Now think about it; that does not make sense!
Gerald Broflovski
Damn it! ... He's using the Chewbacca defense!
Cochran
Why would a Wookiee, an 8-foot-tall Wookiee, want to live on Endor, with a bunch of 2-foot-tall Ewoks? That does not make sense! But more important, you have to ask yourself: What does this have to do with this case? Nothing. Ladies and gentlemen, it has nothing to do with this case! It does not make sense! Look at me. I'm a lawyer defending a major record company, and I'm talkin' about Chewbacca! Does that make sense? Ladies and gentlemen, I am not making any sense! None of this makes sense! And so you have to remember, when you're in that jury room deliberatin' and conjugatin' the Emancipation Proclamation, does it make sense? No! Ladies and gentlemen of this supposed jury, it does not make sense! If Chewbacca lives on Endor, you must acquit! The defense rests.[3]

 

[neroden]

More options stuff:

So if you sold this [put] spread, and the stock price sits at the same place as the volatility dies down to 34.23% (the historic low), you could gain $5555. Of course, if you hold it to expiration and the stock price never drops below 280, then you earn $9500. Your maximum cash at risk is $30000, but you also have to consider the weird case where the stock price sits in between 280 and 240 during expiration. You'll be tasked to purchase 1000 tsla stocks at $280 while the $240 put option expires worthless. That is $280 000 of cash capital at risk...

Though note that -- *assuming you have the margin capacity, which is important* -- you can buy the 1000 TSLA at $280 and then sell it at the market price immediately, which in this hypothetical scenario is between 240 and 280, limiting your loss.

There is one REALLY nasty outcome you have to watch for though -- suppose the price is between $240 and $280 at market close on Friday expiration, so that the $280 put executes, and the $240 put expires. Suppose there is then a black swan news event on Sunday which drives the stock price down way below $240. You're screwed. You could also short-sell on Friday in anticipation of the $280 executing and the $240 expiring, but then if there's a late afternoon move outside the range on Friday, you're screwed.

Suffice to say that most people who do option spreads do not intend to hold them till expiration.

Stuff like the scenario I mentioned above adds to the reasons why you always close a short spread before expiration.

 

[RABaby]

Disagrees are like wrinkles; if you don’t have any than you’re either five or not trying hard enough in life.

You put that "Kick Me" sign on your shirt while you were getting dressed today.

 

[brian45011]

I think Musk simply means the cash on hand will be greater end-of-quarter Q3 than it was end-of-quarter Q2, and that cash on hand will be greater end-of-quarter Q4 than it was end-of-quarter Q3.

OK. It will be interesting, and we'll know the cash on hand balance at end-of-quarter Q2 in a month. At 3-31-18 it was $3.2 billion down from $4.0 billion at 12-31-18. The SH letter said:"

" At this stage, we are expecting total 2018 capex to be slightly below $3 billion, which is below the total 2017 level of $3.4 billion." ($656 million was in 1Q18, so about $2.3 billion for Q2 through Q4.)​

Partially offsetting the un-drawn commitment in the ABL is repayment of $230 million in SCTY converts in November (I assume Elon & Peter Rive will extend their promissory notes for another 6 months at 6.5% interest--quite a deal since the 2025 notes coupon was 5.3% over eight years).

At 3/31/18, Accounts Payable less Accounts Receivable was $1.95 billion. Also, the current portion (due within 12 months) of Resale Value Guarantees was $629 million--not all S or X owners will turn-in their 2 or 3 year old cars, but more than a few might be inclined to switch into a new M3.

Stay tuned.

 

[Papafox]

What is MMD, please? One of the biggest challenges of this forum is all the abbreviations.

MMD= mandatory morning dip.

I coined the phrase a couple years ago when shorts were pushing down the stock every day, right on opening. My regret is that I didn't figure out how to charge royalties on the phrases's use, because if I had, I'd now be a Teslanaire without even the need for stock or options.

Edit:
Other phrases I've coined:
* Capping- Selling at a specific price to keep the stock from rising above it (this phrase is now used outside of TMC).
* Dip on steroids- Sometimes shorts sell hard during a relatively minor dip caused by news or macros to make it a major dip and disguise the fact that the dip is primarily the result of short-selling
* Sticky dip- Sometimes you see a macro dip in which other stocks rebound but TSLA stays low. This is really a case of capping at the low stock price to hold it there. It's typically easier to hold a low price than to force it down
* Sticky dip on steroids- see the above two definitions and combine them

Regarding the use of acronyms: Since this forum is visited by new members regularly, using the full phrase in your post is preferred. If you need to use the phrase several times, include the acronym in parenthesis next to the phrase and then you are free to use the acronym at will for the remainder of the post without confusing the reader.

Regarding the effects of short-selling on TSLA. Back in 2016 at a time when shorts were selling about 60% of TSLA each day, I started naming the strategies above and attributing the effects of these strategies to the shorts. I was met with a huge wave of skepticism. I thank @vgrinshpun for being one of the first to recognize that I had a point and shouldn't be carted off to happydale in a straightjacket.