2017 Investor Roundtable: TSLA Market Action

[brian45011]

I do not understand how this would be an attractive strategy.

For the original holder of the note shorting at price higher than the conversion price of $359.81 (2019/2021) or 327.50 (2022) would guarantee profit of the difference between price at which short is initiated and conversion price, at the expense of reducing the interest by the interest charged for shorting (which actually can potentially exceed the interest of the notes) and by giving up any upside from the SP at which short was initiated. This does not seem to fit the oulook on the future of TSLA that an original conversion note holder would have.

Can you please explain your thinking?

Much depends on the note holder's tolerance for risk and views about future share price levels. Naked J'19 $500 strike calls were selling around $21/contract at COB yesterday, and J'19 $360 strike calls were selling around $61/contract. Hard-to-borrow fees are currently minimal. All positions can be adjusted dynamically. YMMV.

 

[Lessmog]

Much depends on the note holder's tolerance for risk and views about future share price levels. Naked J'19 $500 strike calls were selling around $21/contract at COB yesterday, and J'19 $360 strike calls were selling around $61/contract. Hard-to-borrow fees are currently minimal. All positions can be adjusted dynamically. YMMV.

I dont understand. I dont do options so maybe thats why. But how come the price for a J19 360 call is $40 higher than a J19 500 call, when the stock is now around 350?

My head spins already. Better stay away ...

 

[Krugerrand]

Has Tesla signed any agreements that prevent employees from doing such reviews yet? It would be easy to enforce this agreement if you are employed by the company and know the consequence

One of the main reasons Tesla sold 3s to employees first was so that any issues could be recorded and resolved before they sold to the public.

I know everyone is thirsty for info about the 3, but I'm still surprised at the number of people who are expecting employees to dish dirt on the car. Not going to happen people. The employees will be loyal to the company, enjoy their cars for a little while before everyone else on the planet and work towards solving any issues. That's the plan laid out by Elon.

Can't we just be happy to avoid another issue laden X launch and look forward to being pleasantly surprised by how everyone is happy when the car is ready for them? And of course as a result watch the SP hit new ATHs?

 

[ggr]

I dont understand. I dont do options so maybe thats why. But how come the price for a J19 360 call is $40 higher than a J19 500 call, when the stock is now around 350?

My head spins already. Better stay away ...

The price of the options includes "time value", which is another way of saying "When the call expires, what is the probability that the stock price will be greater than the strike price?". So the $360 call is a bet that the price will be $421 (that is, $360 strike plus the $61 option cost) on Jan 18 2019. Most of us would agree that this is very likely. The $500 strike calls are similarly a bet that the stock price will be $521 at that time. Clearly the chance of that happening is less, which is why the price of the option is less. The $40 difference in option price is basically a measure of the probability of how much the stock rises in that time.

 

[supratachophobia]

Interesting M3 video. I'm not a tesla owner, is this similar to the controls on the S or X?

(VIN# 259)

But the real question, does the media player work?

 

[brian45011]

I dont understand. I dont do options so maybe thats why. But how come the price for a J19 360 call is $40 higher than a J19 500 call, when the stock is now around 350?

My head spins already. Better stay away ...

At a current price of $350/share, the buyer of the J'19 $360 call only has to see the share price go up ~$421 over the next 15 months to be in the money. The higher strike call buyer would need a share price of ~$521 in the exact same time-frame to break even. As the option writer (seller), which strike price you should ask more of a premium for?

FWIW, a note holder/option writer could have-his-cake-and-eat-it-too regarding share price appreciation for the higher strike price as long as the 1/18/19 share price is below $520. Below $500 then, the options expire worthlessly. Above that level, the holder (option writer) is paid the $500, and is short the 100 shares (which assuming he has sufficient notes to cover 100 shares) are covered by the notes. In that case, his tax basis for amount realized would be about $521/short share or ~$521,000/option contract. For the 2019/2021 note holders, the cost basis would be about $357,140/option contract. During that period the holder collects the coupon interest.

Each 2019/2021 note converts at par for ~2.8 shares; 2022 notes about ~3.05, so I'm speculating about what SOME institutional holders (aka elephants) MIGHT be doing.

The 2020 LEAPS begin trading in about 2 months (more intrigue). Note holders are unsecured creditors.

 

[Lessmog]

The price of the options includes "time value", which is another way of saying "When the call expires, what is the probability that the stock price will be greater than the strike price?". So the $360 call is a bet that the price will be $421 (that is, $360 strike plus the $61 option cost) on Jan 18 2019. Most of us would agree that this is very likely. The $500 strike calls are similarly a bet that the stock price will be $521 at that time. Clearly the chance of that happening is less, which is why the price of the option is less. The $40 difference in option price is basically a measure of the probability of how much the stock rises in that time.

At a current price of $350/share, the buyer of the J'19 $360 call only has to see the share price go up ~$421 over the next 15 months to be in the money. The higher strike call buyer would need a share price of ~$521 in the exact same time-frame to break even. As the option writer (seller), which strike price you should ask more of a premium for?

FWIW, a note holder/option writer could have-his-cake-and-eat-it-too regarding share price appreciation for the higher strike price as long as the 1/18/19 share price is below $520. Below $500 then, the options expire worthlessly. Above that level, the holder (option writer) is paid the $500, and is short the 100 shares (which assuming he has sufficient notes to cover 100 shares) are covered by the notes. In that case, his tax basis for amount realized would be about $521/short share or ~$521,000/option contract. For the 2019/2021 note holders, the cost basis would be about $357,140/option contract. During that period the holder collects the coupon interest.

Each 2019/2021 note converts at par for ~2.8 shares; 2022 notes about ~3.05, so I'm speculating about what SOME institutional holders (aka elephants) MIGHT be doing.

The 2020 LEAPS begin trading in about 2 months (more intrigue). Note holders are unsecured creditors.

Thank you both for explaining so well and persuading me to keep staying away!

 

[kenliles]

Thank you both for explaining so well and persuading me to keep staying away!

And if you ever decide to indulge, move slowly with small amounts just to gain perspective into the leverage.
Options should be viewed as a different investment tool allowing leveraged capital, ranging from relative low risk similar to common (or even less properly constructed) with DITM LEAPS, to ultra high risk leverage.
They can be a very productive investment tool, but it’s critical to integrate them with your overall plan and understand the risk profile.

 

[anticitizen13.7]

One of the main reasons Tesla sold 3s to employees first was so that any issues could be recorded and resolved before they sold to the public.

I know everyone is thirsty for info about the 3, but I'm still surprised at the number of people who are expecting employees to dish dirt on the car. Not going to happen people. The employees will be loyal to the company, enjoy their cars for a little while before everyone else on the planet and work towards solving any issues. That's the plan laid out by Elon.

Can't we just be happy to avoid another issue laden X launch and look forward to being pleasantly surprised by how everyone is happy when the car is ready for them? And of course as a result watch the SP hit new ATHs?

The person who took delivery of a Model 3 in Texas has been generously participating in a Q&A over at M3OC. He said it’s a blast to drive.

I’m not sure how much more there is to learn about the actual features of Model 3. The Morooney sticker revealed the MPGe and power train type. The body shop repair manual told us much technical detail regarding structural composition. First Responder’s guide shows operation of doors, frunk, and emergency access/egress info.

Much of what’s left to learn are subjective long term evaluations. It will probably be months before a picture of the car’s overall performance and reliability in a variety of conditions will be in clear. I’m optimistic that the lessons of Model S and X have resulted in a great Model 3. The overall quality of the 3s is much better than S or X at early stage of production, in terms of fit/finish.

 

[ValueAnalyst]

The person who took delivery of a Model 3 in Texas has been generously participating in a Q&A over at M3OC. He said it’s a blast to drive.

I’m not sure how much more there is to learn about the actual features of Model 3. The Morooney sticker revealed the MPGe and power train type. The body shop repair manual told us much technical detail regarding structural composition. First Responder’s guide shows operation of doors, frunk, and emergency access/egress info.

Much of what’s left to learn are subjective long term evaluations. It will probably be months before a picture of the car’s overall performance and reliability in a variety of conditions will be in clear. I’m optimistic that the lessons of Model S and X have resulted in a great Model 3. The overall quality of the 3s is much better than S or X at early stage of production, in terms of fit/finish.

I'll respond to this in the General Discussion thread.

 

[geneclean55]

Actually that car belongs to RiggerJon poster from M30C.
Looking through his posts, he was told on Aug31st that he would receive his car between Sept14-21. He received it either Sept 21 or 22.
Also, his posts strongly suggest that it was manufactured sometime during first week of September.

Scratch that. Completed August 23rd.

 

[bdy0627]

So where is this stock going to find support? First off, it seems that the stock often drops in a pattern of 3-4 big red candles. We've had 3 on this dip. Looking at support levels on the daily chart, the 50 MA has not provided consistent support. However, the 100 MA has been like a rock. Whenever the stock has plummeted through the 50 MA, the 100 MA has provided strong support. We haven't closed below the 100 MA since December 2016.

The July holiday plunge is kind of a unique scenario with the strong bear attack during very light volume because of the holiday. Bears will not have that luxury this week. At that time, the stock dropped into the cloud and found strong support at the 100 MA, which was around $306. The drop essentially involved 4 big negative days along with some choppy days in between. Note that the 50 MA stood alone, with the cloud and 100 MA well below. Over the next 4 trading days, the stock rose 7.5% and stalled as it rose above the cloud, getting choppy but ultimately still rising.

In the days after Model 3 reveal leading up to what most expected to be a disappointing Q2ER, there were 3 main negative days. The stock found support at the 100 MA again, actually dropping well below it and then shooting back well above it. It then gapped up the next day after the Q2ER.

The next drop in mid August involved 3 big red days with the stock again finding support at the 100 MA. It was choppy from there until the recent breakout.

So at least recently, the 100 MA has been a very strong support level. Intraday, the share price has gone below it, but by the end of the day it closed above it. Currently, the 50 MA is right below us at $349.87. The top of the cloud is also just below the 50 MA. I'm not aware of the significance of that as a support. The bottom of the cloud is at $345. The 100 MA is $344.61. Essentially, there is an awful lot of support within just a few points below us with a very strong one (100 MA) 6 points below our current share price. In addition, the previous intraday low was $342, closing at $343 on Sep 8.

Considering all of this, TSLA is very clearly capable of surprises but my best guess is that it will not close below the 100 MA, currently at $344.61. There are some good reasons to believe we are very close to the bottom of this dip. The 100 MA is still sloped up a bit, so it will be rising modestly. If you hadn't already deleveraged on the way down, this is probably not the time to do that now. Might be a good place to sell OTM puts.

 

[Navin]

So where is this stock going to find support? First off, it seems that the stock often drops in a pattern of 3-4 big red candles. We've had 3 on this dip. Looking at support levels on the daily chart, the 50 MA has not provided consistent support. However, the 100 MA has been like a rock. Whenever the stock has plummeted through the 50 MA, the 100 MA has provided strong support. We haven't closed below the 100 MA since December 2016.

The July holiday plunge is kind of a unique scenario with the strong bear attack during very light volume because of the holiday. Bears will not have that luxury this week. At that time, the stock dropped into the cloud and found strong support at the 100 MA, which was around $306. The drop essentially involved 4 big negative days along with some choppy days in between. Note that the 50 MA stood alone, with the cloud and 100 MA well below. Over the next 4 trading days, the stock rose 7.5% and stalled as it rose above the cloud, getting choppy but ultimately still rising.

In the days after Model 3 reveal leading up to what most expected to be a disappointing Q2ER, there were 3 main negative days. The stock found support at the 100 MA again, actually dropping well below it and then shooting back well above it. It then gapped up the next day after the Q2ER.

The next drop in mid August involved 3 big red days with the stock again finding support at the 100 MA. It was choppy from there until the recent breakout.

So at least recently, the 100 MA has been a very strong support level. Intraday, the share price has gone below it, but by the end of the day it closed above it. Currently, the 50 MA is right below us at $349.87. The top of the cloud is also just below the 50 MA. I'm not aware of the significance of that as a support. The bottom of the cloud is at $345. The 100 MA is $344.61. Essentially, there is an awful lot of support within just a few points below us with a very strong one (100 MA) 6 points below our current share price. In addition, the previous intraday low was $342, closing at $343 on Sep 8.

Considering all of this, TSLA is very clearly capable of surprises but my best guess is that it will not close below the 100 MA, currently at $344.61. There are some good reasons to believe we are very close to the bottom of this dip. The 100 MA is still sloped up a bit, so it will be rising modestly. If you hadn't already deleveraged on the way down, this is probably not the time to do that now. Might be a good place to sell OTM puts.

View attachment 249529

 

[Krugerrand]

View attachment 249541

I like your lines way better than the other guy's lines.

 

[Paracelsus]

View attachment 249541

@Navin - i have learned to respect the value of your input based on the accuracy of the TA/charts you have shared in many previous posts. Are you expecting the move you identified to a high that finally breaks 400 to peak just prior to - or after the semi unveiling? Are you expecting a dip to follow the unveiling, or a continued upward move in the short term? Thanks in advance.....

 

[Navin]

No clue really. Short term direction is always hard to predict. I use a combination of instincts, technical, trend, and a whole bunch of qualitatively driven factors to decide what to do with my trading account (of course - I build my own valuation models and take a very analytical approach to revenue, costs and margin)

Tesla is volatile and I expect the next month or so to be a bit on the wild side.

What I did to prepare for the volatility was to de leverage and keep some cash ready to pounce on any big weakness or dips.

I’m really looking forward to the semi event. I’ll be there in person - something big is going to happen that people aren’t expecting. (Just a hunch

Having said all of the above - I did add a decent quantity of 2019 calls (I like the 300s personally) at the close on Friday. Tesla is way oversold on the rsi (hourly) and will bounce hard early next week - assuming market doesn’t tank given geo political nonsense.

 

[neroden]

The last 10Q still had around 50-60k of the convertibles still unconverted (IIRC).

Oh, the first series of convertibles -- the ones which are deep in the money.

TSLA had to account for these on their books. These would be the last batch of the super cheap convertibles from the DOE loan that were left. I figure that those are the ones that Fidelity owns (interestingly I own the convertible fund and it showed up there on the last statement I got from Fidelity--honestly I never really noticed until recently).

OK, you're guessing Fidelity owns all or most of those.

I would have assumed they would have slowly petered them out, but you never know. I just recalled that the last 10Q stated that 1.2 million (?) of the convertibles were exercised in June--presumably at the previous peak. So presumably the last batch may have been converted the last couple of days. Numbers that @zdriver saw would fit (he saw a huge 50k order come in to sell).

This would be interesting -- and somewhat unusual.

I'm told most convertible bond buyers insta-hedge their convertibles by immediately selling call options (or something similar) which prevents this sort of sudden large effect on the market for the stock by shifting it into the options market makers' delta-hedging. So this would indicate that Fidelity wasn't doing that.

It would be no big deal to sell at market because their basis was so much lower than any SP we have now, even 350 (just like how Tesla execs who get shares allocated for meeting targets likely do the same--they got the shares for "free", so anything is gravy). I don't know the details of how the converts work--can you convert a little at a time or have to do it in a big batch?

Units of $1000.

Does the fact that they have to go to Tesla to convert the shares limit how often they would do this? I don't know.

I don't know either.

Nonetheless, presumably that many being sold as a large order would bring the SP down a lot (since I recall most people/funds/hedges try to sell in 100 share lots to keep from being too noticeable and move the market). This in turn would make paranoid traders... more paranoid, and they would start to sell, add in the FUD, etc... so on and so on... (the thinking would be: someone big is selling big, thus something bad is afoot... we must sell too! Then add in the algobots who are programmed to do the same).

Obviously I have no idea if this is correct, but would be happy if those convertibles finally get executed and "disappear". By the way these were the same issues that killed SP last year after SCTY/TSLA merger was announced. It showed up on FMR LLC Edgar .... or more appropriately, a large batch disappeared after the 3rd quarter from FMR's holding.

Thanks for explaining your thoughts.

 

[ValueAnalyst]

Oh, the first series of convertibles -- the ones which are deep in the money.


OK, you're guessing Fidelity owns all or most of those.


This would be interesting -- and somewhat unusual.

I'm told most convertible bond buyers insta-hedge their convertibles by immediately selling call options (or something similar) which prevents this sort of sudden large effect on the market for the stock by shifting it into the options market makers' delta-hedging. So this would indicate that Fidelity wasn't doing that.


Units of $1000.


I don't know either.


Thanks for explaining your thoughts.

I wonder if the converts could be selling en masse to create a buying opportunity for equity teams at the same firm...

 

[bdy0627]

I just watched trader Justin Pulitzer's analysis of TSLA. He discusses the 100 MA as support and using that as a gauge, just as others here had. His analysis is that we had a look above and fail and theoretically should drop to the range low. Bottom line is 100 MA my provide a bottom or it may not, but it is not the range low. If it does not, the next logical bottom is the range low/200 MA. Knowing this, the goal for bears this week undoubtedly is to help the stock drop below the 100 MA. That would likely provide downward momentum to get to the range low. I'll personally be surprised if we don't get at least a little bounce tomorrow. Remember that the stock has a history of dropping below the 100 MA intraday but closing at or above it. Back on August 2nd, the stock dropped about 8 points below the 100 MA intraday before closing about 6 points above it. But, that was going into Q2 ER, and it gapped up the next day. The day before, it went about 3 points below the 100 MA before closing just above it.
On the other hand, if you're looking to get back in or add, the only reason to expect a quick return back up is if the Q3 delivery numbers are good. It appears that there is more risk at this point for further drop than there is likelihood of a rapid rise back up. If the stock gets support at the 100 MA and then is choppy for a few weeks, there is no need to jump back in given the risk.
What this means for me is that I am likely to convert shorter term J18 leverage to J19 DITM LEAPs. If we then end up dropping to the 200 MA, I'll leverage those to J18s again. If we rise from here, the DITM LEAPS, while nowhere near as good as J18s, will still perform well.

 

[Navin]

I just watched trader Justin Pulitzer's analysis of TSLA. He discusses the 100 MA as support and using that as a gauge, just as others here had. His analysis is that we had a look above and fail and theoretically should drop to the range low. Bottom line is 100 MA my provide a bottom or it may not, but it is not the range low. If it does not, the next logical bottom is the range low/200 MA. Knowing this, the goal for bears this week undoubtedly is to help the stock drop below the 100 MA. That would likely provide downward momentum to get to the range low. I'll personally be surprised if we don't get at least a little bounce tomorrow. Remember that the stock has a history of dropping below the 100 MA intraday but closing at or above it. Back on August 2nd, the stock dropped about 8 points below the 100 MA intraday before closing about 6 points above it. But, that was going into Q2 ER, and it gapped up the next day. The day before, it went about 3 points below the 100 MA before closing just above it.
On the other hand, if you're looking to get back in or add, the only reason to expect a quick return back up is if the Q3 delivery numbers are good. It appears that there is more risk at this point for further drop than there is likelihood of a rapid rise back up. If the stock gets support at the 100 MA and then is choppy for a few weeks, there is no need to jump back in given the risk.
What this means for me is that I am likely to convert shorter term J18 leverage to J19 DITM LEAPs. If we then end up dropping to the 200 MA, I'll leverage those to J18s again. If we rise from here, the DITM LEAPS, while nowhere near as good as J18s, will still perform well.

Good thoughts. Keep in mind that as tesla rolls around it’s 100 MDA - It’s on oversold conditions - so they should give us some comfort that bottom could be near.