2017 Investor Roundtable: TSLA Market Action

[neroden]

Afaik, in option data, open interest data is only available end of day so that chart might move a lot each day as open interest changes.

Maximum-pain.com recalculates it at the end of the day every day, though sometimes they fail to get the data.

Open interest data IS available real-time from many brokers, though you'd have to do the calculation yourself. Or just eyeball it -- the "open interest walls" are often more informative than max pain itself. If there are a HUGE number of $325 calls, the market makers would really prefer it if the stock closed below $325, and even if max pain is at $300 they might not really care much about whether it goes up to $320 if there are rather few calls outstanding between $300 and $325.

 

[neroden]

Nobody posting this ?

Elon Musk now “firmly believes” that the stock has the potential for another tenfold increase “over the next five to ten years”.

But that's only a 25% annualized growth rate (if it takes 10 years). Has Musk lost his optimism?

 

[neroden]

Almost all market makers trade delta hedged, so we trade on changes to volatility. A few firms do make delta bets but that isn't the norm for market makers. We don't care about ranges, just vol changes. You can bet that the "large buyers" were prop shops doing ~60-80% of that volume trying to get in front of the Vega spike. My old firm used to be counterparty on something like 18-25% of TSLA trades daily and was always doing so delta hedged.

Maybe you can give some insight into typical market maker behavior.

When TSLA makes a large move, the delta changes on all the outstanding options (even the gamma changes), so you have to rehedge your delta, right?

Also the implied volatility just went way up. It was at an unusual low for TSLA.

So, you may be able to explain the market maker methodology better. Suppose: You sell a call option, you buy some stock to be perfectly delta-hedged *if delta doesn't change*. (So, say, you sell a $300 call today, delta is .538, so you buy 53.8 shares of stock.) Then the stock goes up to $350. Delta on this option is probably .916 now. You have to buy 37.8 more shares of stock to stay delta-hedged, right?

Now that doesn't even include the volatility question. You sold at low IV, and IV went up -- this is losing you money. So what might you as a market maker actually do about this?

Vega is .472 on the $300s right now, though it goes down when the stock moves far away from $300.

I'd just like to understand this better. I know market makers are delta hedged, but that's not much of a hedge on a stock which is going to have large, sudden future price movements. So what are they doing about all that?

 

[neroden]

OPEC production cuts.. Are these real production cuts, or just the typical pretend production cuts that OPEC engages in? That's the problem with OPEC is that they'll say they're going to cut production by X target, but being the greedy types they are, don't cut it as much, trying to keep their revenue stream as high as possible.

The classic OPEC action, which they *just did*, is that at time A they agree to, at time A +2, cut output by 10% of their production at time A + 1. So then they all boost production as much as possible between A and A + 1 so that when they cut they are cutting from a higher base.

 

[neroden]

Solar Roof order launch and pricing is due next week... I think I recall that only the "flat slate" will be available at first. French Provincial will be the last

Where did you get that information? I remember being told that only one would be available at first, *but they didn't say which one* and I didn't find any information confirming which would be first anywhere.

 

[neroden]

Given what's going on in Germany, this may be one of the those times when he's too optimistic. I don't know, but I feel like if this was going to happen next week we would've known about it by now. Or maybe it will be one of those situations where people put down deposits but end up waiting for months. What do you think?

As someone who is (probably quixotically, given my location) hoping to buy the Solar Roof, I am *expecting* it to be "put down deposit and wait for months". If it is anything else I will be surprised.

 

[Zhelko Dimic]

Maybe you can give some insight into typical market maker behavior.

When TSLA makes a large move, the delta changes on all the outstanding options (even the gamma changes), so you have to rehedge your delta, right?

Also the implied volatility just went way up. It was at an unusual low for TSLA.

So, you may be able to explain the market maker methodology better. Suppose: You sell a call option, you buy some stock to be perfectly delta-hedged *if delta doesn't change*. (So, say, you sell a $300 call today, delta is .538, so you buy 53.8 shares of stock.) Then the stock goes up to $350. Delta on this option is probably .916 now. You have to buy 37.8 more shares of stock to stay delta-hedged, right?

Now that doesn't even include the volatility question. You sold at low IV, and IV went up -- this is losing you money. So what might you as a market maker actually do about this?

Vega is .472 on the $300s right now, though it goes down when the stock moves far away from $300.

I'd just like to understand this better. I know market makers are delta hedged, but that's not much of a hedge on a stock which is going to have large, sudden future price movements. So what are they doing about all that?

Check (my ex-contryman's) explanation:
The man who moves the markets says to buy the Trump slump
gamma imbalance, and how hedging/rehedging to accommodate for gamma affects markets. Take a look at that day's chart, it was kinda dramatic... Lots of gaps to fill in his explanations, but you get some feel for dynamics...

I re-leveraged that day in Tesla based on @jesslivenomore explanations, and play on predicted Ichimoku cloud bounce, that actually did happen, though it was a nail-bitter for a day ot two...
Still around 140% invested in Tesla since then.

 

[Zhelko Dimic]

Check (my ex-contryman's) explanation:
The man who moves the markets says to buy the Trump slump
gamma imbalance, and how hedging/rehedging to accommodate for gamma affects markets. Take a look at that day's chart, it was kinda dramatic... Lots of gaps to fill in his explanations, but you get some feel for dynamics...

I re-leveraged that day in Tesla based on @jesslivenomore explanations, and play on predicted Ichimoku cloud bounce, that actually did happen, though it was a nail-bitter for a day ot two...
Still around 140% invested in Tesla since then.

BTW, today was a weekly/monthly/quarterly options expiration date, which means more money was in a play re maxpain. Tesla's max pain was $295, and that means TSLA's SP was suppressed by option holders profit taking and corresponding MM's un-hedging*

Next week TSLA SP should be under waaay less downward selling pressure from max pain, as it's just weekly options expiry. Easier to move up, if warranted by other developments.

*I often see this described as if MMs actively drive price in particular direction, which based on my understanding isn't quite true. It's reflexive reaction of MM's removing hedge, after option holder close positions that are in the money. This removing hedge is stock transaction that pushes SP towards the max-pain, so first option holders to make move get to keep bounty, as more of them do it, up or down pressure makes it less worthwhile for the rest of them. If properly hedged for delta, MMs couldn't care less what happens (for small, contained moves; large ones, see Marko's explanation)...

 

[ValueAnalyst]

If there are a HUGE number of $325 calls, the market makers would really prefer it if the stock closed below $325

Isn't this manipulation? I would "prefer" it if the stock closed above $1,000.

 

[dalalsid]

Maximum-pain.com recalculates it at the end of the day every day, though sometimes they fail to get the data.

Open interest data IS available real-time from many brokers, though you'd have to do the calculation yourself. Or just eyeball it -- the "open interest walls" are often more informative than max pain itself. If there are a HUGE number of $325 calls, the market makers would really prefer it if the stock closed below $325, and even if max pain is at $300 they might not really care much about whether it goes up to $320 if there are rather few calls outstanding between $300 and $325.

Interesting. Thanks for the info. I'll check if my data source updates open interest intraday. My chart does the calculation itself. I'll see if I can plot open interest overlaid on the max pain chart at some point next week - http://demo.chartiq.com/widgets/2.0/portal2-dark.html?page=options

 

[PaulusdB]

The "Benelux" treaty predated the EU by a *lot*. If France and Germany both exit the EU, Benelux would probably keep using euros.

Yes, we probably would, but be calling them DeutschMarks.

 

[Lessmog]

Yes, we probably would, but be calling them DeutschMarks.

Or Dutchmarks? ;-)

 

[Intl Professor]

Hoping a whale-nuts growth in SP soon.

 

[Starno]

Hoping a whale-nuts growth in SP soon.

That's what I thought since a week, but apparently the SP decided to be lazy and didn't move a inch since 3 weeks...

 

[Hogfighter]

Market Cap of $50bil is quite a chunk of change until the 3's roll off the line in large numbers, or until TE starts selling big numbers of batteries, or both. My 2 cents anyhoo.

 

[Starno]

Market Cap of $50bil is quite a chunk of change until the 3's roll off the line in large numbers, or until TE starts selling big numbers of batteries, or both. My 2 cents anyhoo.

Uber is 78 B.

 

[myusername]

Uber is 78 B.

as long as you can find something more dumb... your investment is safe!... shall we talk about juicers?

This $400 juicer that does nothing but squeeze juice packs is peak Silicon Valley

 

[Starno]

as long as you can find something more dumb... your investment is safe!... shall we talk about juicers?

This $400 juicer that does nothing but squeeze juice packs is peak Silicon Valley

Lol what's the point, this 400 dollars juicer is BS if you can do it by hand.
-----

Uber service if was BS, people wouldn't use it billions of times every year.
--------
There is a difference between a company worth a lot WHILE selling BS. And a company worth a lot because EVERYONE is using or starting to use it.

 

[racer26]

as long as you can find something more dumb... your investment is safe!... shall we talk about juicers?

This $400 juicer that does nothing but squeeze juice packs is peak Silicon Valley

There are plenty of dumb companies to invest in.

Uber, by any logic, should amount to a license to print money. How much does it cost to write some fancy phone apps? Not much. They don't have to put out money to buy and insure cars to run their service, because the independent contractor model allows them to foist that off on the drivers. And yet? Uber loses truckloads of money, because they routinely sell their product below cost trying to gain market share. How is a company doing that worth 50% more than Tesla?

Market share is not a capital expenditure. It can be easily lost.

 

[Hogfighter]

Uber is 78 B.

If Uber ever went public at $78bil market cap, I'd short the crap out of it.