2017 Investor Roundtable: TSLA Market Action

[neroden]

The synthetic long position isn't complex to manage...
Please let me know if there is another scenario I'm missing that has significant risk, different than owning 100 shares of stock.

Section 1260 tax treatment if you execute and don't close in the same tax year.

When I discovered this it caused me to bail out of a synthetic stock position when I would otherwise have kept it to execution, because it wasn't worth the accounting hassle (my accountant had never heard of this).

 

[neroden]

There is also a change in policy. While previously there were two ways to schedule a service visit: one if you want to make sure to get a Tesla loaner, and another if you do not need a loaner or will accept a rental. The second way obviously resulted in a shorter wait. Now the service appointment is booked without any differentiation, and if there is no Tesla loaner available at a time of the drop-off, a rental is arranged.

Mmmph. Yuck. That's actually a serious downgrade. I really want to never drive a gas car again, so a rental is pretty unacceptable. I had to deal with one last time, and I left it running for two hours because I forgot that there was an "engine" which needed to be "turned off". This is no good. Tesla needs to get enough loaners to always always give people Teslas, or at least other electric cars (I'd take a Bolt or a Leaf...)... or start regularly renting Teslas. If I could rent an electric car, it would be OK...

According to an unofficial info, dropping a car in the beginning of the week most likely yields a Tesla loaner, with a possibility for a rental loaner increasing in the second half of the week.

 

[neroden]

What's going on with the post market jump?

Bear raid is over. Bargain-hunters are moving in on the stock and the short-sellers aren't active.

 

[NicoV]

The question they should keep asking every call is what's the target steady state GM on Model 3 once production is over 250K per year. That's the real end game

True, but it's only a preview of the end game. The real endgame is when Tesla has a dominant market position like Apple or Intel.

 

[geneclean55]

Bear raid is over. Bargain-hunters are moving in on the stock and the short-sellers aren't active.

The AH volume was incredible today. I wondered if it was covering in anticipation of some M3 tweets. Having never tried shorting, I don't know if you can cover AH.

 

[TMSE]

Bear raid is over. Bargain-hunters are moving in on the stock and the short-sellers aren't active.

I am leaning towards the thesis that it was a carefully orchestrated bear raid, which is illegal. There is no free lunch. So, what did it cost them? More short positions?

 

[MitchJi]

@MitchJi are you willing to double down on the box of chocolates? I predict that S+X pricing will remain firm through at least 12/31/17. Tesla needs all the margin $$ they can get from S+X to offset the poor startup margins for Model 3.

Yes double or nothing!

Thank you for giving me the opportunity to save a few bucks!

 

[Turing]

Bear raid is over. Bargain-hunters are moving in on the stock and the short-sellers aren't active.

Got to give the big money shorts credit, that was quite a fix they put in this week. Nice little FUD shock and awe media blitz over things that were largely already known, like s/x production rates scaled to 100k/yr, Tesla hitting lower end of guidance. It was well timed too, a lot of weak longs happy to book profits that were shaken out. I had thought the bear attack would have come a few weeks before production started, so i had been eating premium with hedged puts for a while.

 

[MitchJi]

The synthetic long position isn't complex to manage. When it is set up with prices cancelling each other out, one simply gains exposure to the 100 shares of stock, with 1:1 upside and downside as if you owned the stock, especially when held to expiration.

If the position is set up at $300 for a break even, and the stock price is $310 at expiration you gain $10/share x 100. If the stock is $290, you lose $10/share. The risk is in the interim, if the stock is significantly lower than your set up price, you risk the shares being put to you. This can come into play if set up in a company with significant dividends and the put purchaser can gain by calling away the stock to poach the dividend, which is not a problem in $TSLA.

The synthetic long for '19 strikes allows plenty of time for the shares to increase above $300, and exposing you to a $1:$1 gain along with the share price, giving you exposure to 100 shares. You can also usually set them up so you get paid a small amount to open the position.

Punchline is, it is not very complex at all, and has no major downsides other than the intermediate risk of being put shares during a large drop if you weren't expecting it.

Please let me know if there is another scenario I'm missing that has significant risk, different than owning 100 shares of stock.

You can lose a lot if your position isn't delta neutral, which is difficult to,set up and maintain.

Depending on the belief that everyone will behave sensibly is very unsafe, for example the foolish TSLA shorts.

 

[everman]

Section 1260 tax treatment if you execute and don't close in the same tax year.

When I discovered this it caused me to bail out of a synthetic stock position when I would otherwise have kept it to execution, because it wasn't worth the accounting hassle (my accountant had never heard of this).

Thanks so much, I'll look into it.

 

[1kEE]

Punchline is, it is not very complex at all, and has no major downsides other than the intermediate risk of being put shares during a large drop if you weren't expecting it.
Please let me know if there is another scenario I'm missing that has significant risk, different than owning 100 shares of stock.

I think the main risk is someone relatively new to options and/or volatile stocks just over-exposing themselves and loosing their entire account very quickly.

Different brokerages handle and limit this position differently. It may or may not use up cash (heck, it may generate available cash). I have never been declined the ability to open such a position for lack of collateral, even tho the level of exposure I was taking on was huge relative to the account value. It's probably treated like a cash secured or naked put plus the purchase of a long call by most brokerages.

Basically, don't do this unless you are aware of the downside risk, it's magnitude, and have a solid plan for handing it. And have already proven to yourself through experience that you can stick to that plan during times of extreme stress. With the amounts of exposure that can be achieved with some options stategies, you will eventually see movements so extreme you will not be able to think clearly and fast enough. Sticking to strategy, and doing so quickly, is the only way to handle this.

Let's say you have a 200k account.... and open up 50 contracts of synthetic long stock. Stock price goes from 380 to 360. -$20x5000. Your account is now worth 100k a day later. Do you stop out or double down? Better have that plan in place ahead of time, and be comfortable with its potential outcomes! Next day stock gaps down to 350 and closes at 330. Account value is -50k. Two days, it's over. If you're lucky your broker liquidates you partway through, not when it's -50k and then seeks a judgement against you.

In some ways it's riskier then buying $200k worth of weeklies in a $200k account. At least that way worst that can happen is they expire worthless in a few days and you're at zero but not getting your wages attached.

 

[Plotinus]

Actually, I just re-read this. I specifically mentioned the in-transit number of 3500 and how it relates to prior in-transit numbers, so I would appreciate it if you didn't twist that into saying I was talking about the 22000 Q2 delivery number of which I made no mention.
If you believe Tesla and InsideEV who said - prior to the Tesla press release I might add- that very little 100kWh production occurred for April, and most of May, then it is impossible to "resolve" and "absorb" all global transits of Q2 customer-designated 100kWh cars during the month of June.
AIMc's suggestion that a number of these cars missed the Q2 deadline were subsequently re-purposed as loaners/demos for US and foreign markets during Q3 seems plausible to me. Result - lower number of customer designated in-transit cars.

To tie it in more closely to your point on deliveries. If there were production delays for 100kWh cars in April , May (there definitely were! go check out the MX 2017 VIN thread for example) then to play catch up in June you aren't going to devote production for overseas deliveries, instead you are going to squeeze in as many US deliveries as possible. Hence, reduced numbers of cars on boats in-transit and more deliveries in the hands of US customers.

Whether the in transit numbers are light or not is something that needs to be judged in light of the numbers of delivered cars. That is what concerns the discussion before your post, which you presumably were responding to. No one in the market cares (at least not in a negative sense) about the ratio of delivered cars and cars in transit, but they do care about the overall number.

This is however irrelevant to the point you're making, which is that the numbers for cars in transit were artificially low and could be higher due to the existence of a high number of customers who hadn't received their cars, because Tesla opted to ship these cars to their demo fleets instead of sending them to their waiting customers. It certainly doesn't reflect better on the company If their numbers can be explained by their electing to postpone delivery of an already postponed car in order to "manipulate" the quarterly composition of their delivered cars. Cars in transit are officially counted for Q3 anyway so I don't know what this "too late"-narrative is supposed to rest on.

Yes, Tesla has sent many new cars to their demo fleets. Tesla produced 7000 cars more than they sold, so they have plenty of cars to send to these fleets. Customers who have placed an order and have been waiting for their 100kWh Xs are of course prioritized over their demo fleets.

 

[ValueAnalyst]

The AH volume was incredible today. I wondered if it was covering in anticipation of some M3 tweets. Having never tried shorting, I don't know if you can cover AH.

You can cover a short AH; just like you can go long AH. It's essentially the same trade.

I don't think you can trade options AH. Options are a different type of animal all together.

 

[vgrinshpun]

Mmmph. Yuck. That's actually a serious downgrade. I really want to never drive a gas car again, so a rental is pretty unacceptable. I had to deal with one last time, and I left it running for two hours because I forgot that there was an "engine" which needed to be "turned off". This is no good. Tesla needs to get enough loaners to always always give people Teslas, or at least other electric cars (I'd take a Bolt or a Leaf...)... or start regularly renting Teslas. If I could rent an electric car, it would be OK...

I did not like this either, but the impact depends on whether the quantity of Tesla loaners they maintain is adequate to cover almost all demand for them. If this is the case, the non-Tesla loaners will be used in extreme cases of unusually high demand for loaners, and this change in policy would be quite reasonable.

 

[everman]

I think the main risk is someone relatively new to options and/or volatile stocks just over-exposing themselves and loosing their entire account very quickly.

Different brokerages handle and limit this position differently. It may or may not use up cash (heck, it may generate available cash). I have never been declined the ability to open such a position for lack of collateral, even tho the level of exposure I was taking on was huge relative to the account value. It's probably treated like a cash secured or naked put plus the purchase of a long call by most brokerages.

Basically, don't do this unless you are aware of the downside risk, it's magnitude, and have a solid plan for handing it. And have already proven to yourself through experience that you can stick to that plan during times of extreme stress. With the amounts of exposure that can be achieved with some options stategies, you will eventually see movements so extreme you will not be able to think clearly and fast enough. Sticking to strategy, and doing so quickly, is the only way to handle this.

Let's say you have a 200k account.... and open up 50 contracts of synthetic long stock. Stock price goes from 380 to 360. -$20x5000. Your account is now worth 100k a day later. Do you stop out or double down? Better have that plan in place ahead of time, and be comfortable with its potential outcomes! Next day stock gaps down to 350 and closes at 330. Account value is -50k. Two days, it's over. If you're lucky your broker liquidates you partway through, not when it's -50k and then seeks a judgement against you.

In some ways it's riskier then buying $200k worth of weeklies in a $200k account. At least that way worst that can happen is they expire worthless in a few days and you're at zero but not getting your wages attached.

ok, I understand why you guys are talking about extreme leverage and large magnitude moves. Opening a 50 contract position is massive, like buying 5,000 shares. That's TT007 territory! The account value swings with 5,000 shares can be extreme!

My strategy with the synthetic long is much more akin to a core share position. I count my synthetic long positions along with my core shares, where put selling and diagonals are my 'actual options' strategies. Treat the synthetic long like actually buying stock. It takes some discipline, because it feels like you're taking a core stock position and getting paid $200 to do it.

In this way, I add them one contract at a time, maybe two (if it's a lower price stock, not $TSLA), and treat it like accumulation, knowing I need to open them at the bottom and when I anticipate an oversold condition, just like adding to the core position.

 

[Ugliest1]

I'm like a stock genius with my stop loss yesterday and buy back. I saved like $100 after fees and only gained 5 grey hairs in the process.

Yeah, but if you want to see a truly "super-exponential curve" (I'm sure you know what I'm talking about from another thread!), once the grey hairs start....

 

[MitchJi]

ok, I understand why you guys are talking about extreme leverage and large magnitude moves. Opening a 50 contract position is massive, like buying 5,000 shares. That's TT007 territory! The account value swings with 5,000 shares can be extreme!

My strategy with the synthetic long is much more akin to a core share position. I count my synthetic long positions along with my core shares, where put selling and diagonals are my 'actual options' strategies. Treat the synthetic long like actually buying stock. It takes some discipline, because it feels like you're taking a core stock position and getting paid $200 to do it.

In this way, I add them one contract at a time, maybe two (if it's a lower price stock, not $TSLA), and treat it like accumulation, knowing I need to open them at the bottom and when I anticipate an oversold condition, just like adding to the core position.

How is that better than selling one or two puts?​

 

[everman]

How is that better than selling one or two puts?​

The gain when selling a put is realized all up front, and capped there, with no further upside. The best case scenario when selling a put is that it expires worthless and you keep the premium. When you add a call at the same price, you have unlimited upside as the stock appreciates with the time value having been paid for by the put. Then the put expires worthless and your upside is defined as the $1:$1 gains in the stock price.

For J19s I anticipate the gains to be larger than the premium currently being offered for a ATM J19 put (currently at $65, or $380/share equivalent). Just selling a put is like pre-reaping the gains of a stock appreciation to $380, where the stock could appreciate quite a bit more than that by J19. The pre-paid call option leg lets you reap all the J19 gains, for example If it goes to $500, then it's $500 - $380 = $120 additional gains over put-only strategy

So I suppose the answer to your question is that it isn't better if the stock will be < $380 in J19, it is better by a $1:$1 ratio if the stock is > $380 in J19.

 

[Zhelko Dimic]

Indeed. Other than friends' cars, I imagine that Tesla service centers eventually will be the place for test drives. Questions can be answered there, or by phone or online with California headquarters. If a car is being custom ordered, it's a quite different procedure from test driving the actual car one might buy from a dealership's inventory.

It's becoming more and more obvious how outdated the franchised dealership model has become. If the only local connection is a service center, state laws disallowing Tesla stores may be circumvented. I wouldn't be surprised if eventually all automakers attempt to follow the Tesla model for online sales and local service. Bye bye franchised dealerships. Welcome to the 21st century!

Is bold-ed part common in US? Because I've bought fair chunk of new cars, and I've never, ever had opportunity to drive specific (new) car that I would buy. Dealer typically maintain one or two demo cars, and there is no way the'll let you put any km on brand new, never touched car. You don't even get to see it, because it's in a parking lot who knows where, until the day of delivery.

Tesla also specifically does software emulation of all models from P100D, so as you drive, you ask your sales person to switch a model, and he does that from the on-screen menu options. With other brands, it may be sometimes harder to try specific engine you want, so for BMW, only 335 may be available for test drive, eventhough you're buying 328. This is Canada I'm talking about, and we have both independent dealers and manufacturer owned flagship stores...

Now, for used cars, sure, you get to try one that you want to buy...

 

[Zhelko Dimic]

I like your thinking! I suggest raising that to $43, I just sold a couple at that.

This is all true, but, you could have bought shares for $180 just a short little while ago... Nothing fundamentally changed. Yup, M3 ramp is confirmed. That' not fundamental change for me, if ramp slid 6 months, It wouldn't have been any different for me(unleveraged!).
This is the way I'm forcing myself to think to avoid 'recency bias', looking at 5+ years horizon.
It doesn't mean I'm right, just another vantage point. Consider it, if you find it useful. Or not