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From potential Tesla customer to buying put options

Discussion in 'TSLA Investor Discussions' started by mryeburn, May 3, 2017.

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  1. mryeburn

    mryeburn Member

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    Sorry for the long and rambling thread. I just made my first foray into options trading, buying January 2019 put options on TSLA. Since I was previously highly positive on Tesla and was about to place an order for one a few years ago, I thought I would post the reasons why I think TSLA will approach zero in the medium to long term.

    Like most people who test drive a Model S, I fell in love with the car immediately, and was ready to place an order then and there. The salesman, and the Tesla website, promised Ranger service (I forget if it was free or a nominal amount), and living far from the Tesla dealer, I wanted the Ranger service commitment in writing before I put down a deposit. Several phone calls and e-mails later, and no written commitment to their Tesla Ranger service, so i did not place my order.

    I followed the Tesla news and forums, and noticed a pattern. Promises were made and not kept. Forecasted release dates for new vehicle models proved overly optimistic. Free supercharging was advertised, then people were discouraged from using the superchargers, then free supercharging got taken away. There were serious concerns about reliability and quality, and Consumer Reports dropped the vehicle from its recommended list. Overall there seemed to be a pattern of overpromising and underdelivering.

    I have read optimistic production forecasts for the Model 3. I understand that they are going straight into production rather than doing a prolonged test of prototypes. Given the previous quality issues with the Model S and Model X, I question whether Tesla Motors can produce the Model 3 at an acceptable quality level, by the projected dates and in the volumes which have been forecast.

    In addition, GM, Ford, Hyundai, Honda, Toyota, Volkswagen and just about every other car company is producing, or plans to produce electric vehicles. If there is one thing I have learned from studying Tesla the past few years, it is that vehicle production is an incredibly complex business. I am not so sure that Tesla is capable of competing against the big boys.

    There has been an amazing run-up in the TSLA stock price, despite the company losing money. It is as if their production and quality problems do not exist, as if the major automobile manufacturers are not going to compete with them, and as if the Model 3 will somehow be profitable despite being priced far lower than the Model S.

    The most probable outcomes I forsee are either bankruptcy or being bought out at a low price by a competitor in the next few years. I sincerely hope to be proven wrong. It is sad, as the Model S, when it is working, is an amazing car. Having missed some obvious bubbles in the past (Bre-X, dot-com bubble, etc) where I should have bought put options but was too scared, I am not going to miss out on this one. I have purchased options to sell 600 shares of TSLA at $220.00 by January 2019, and I am to quintuple this investment over the next few months.
     
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  2. Navin

    Navin Member

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    Good luck. You will need it for this trade
     
  3. erthquake

    erthquake Member

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    To which "production and quality problems" are you referring? They had record production and sales last quarter. Can you quantify any recent quality issues that occur at a rate significantly worse than any other major auto manufacturer? The Model 3 "prototypes" have began testing over a year ago.

    Perhaps you are a legitimate bear, but honestly, your "long and rambling thread" simply reads as an unoriginal rehash of bearish malinformation that we've read time and again. If you are sincere, I urge to dive deeply into these forums, read with an open mind, and ask sincere unloaded questions. Otherwise, you risk making a grave mistake by blindly following bearish FUD.
     
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  4. RiverBrick

    RiverBrick Active Member

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    I wouldn't count much on Honda's upcoming 130 km range Clarity EV to put much of a dent into Tesla's sales. If anything, Honda will have to purchase ZEV credits from Tesla.
     
  5. TexLaw

    TexLaw Member

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    I don't know, man. If this is your first foray into options, then you probably ought to learn much more about them. Buying (or selling) single options that are waaaaaay out of the money is the classic rookie mistake (i.e., sucker's bet). If it hits, well, fantastic, but you're really shooting for the Moon on this one, and it sounds like your assumptions on how those options will increase in value are way off.

    I do a lot of options trading, and I wouldn't touch something like this unless I had stolen an almanac from the future.
     
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  6. neroden

    neroden Happy Model S Owner

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    #6 neroden, May 3, 2017
    Last edited: May 3, 2017
    Tesla's service center /ranger situation is a mess -- and I've been yelling at them about the lack of service centers more than anyone -- but it just doesn't seem to be affecting sales. (And yes, in Prince Rupert, you simply should not buy a Tesla at the moment.)

    Microsoft made crap products, and nobody cared, people kept buying the products.

    Apple has pulled all kinds of *sugar* and nobody cared, people kept buying the products.

    Tesla seems to have the same "they buy it anyway" thing going on.

    First thing you have to learn about Tesla is that they are *always* late. But even if they're late, they still seem to be coming out ahead of all their competition.

    One of the key things is to properly analyze the competition. The incumbents have announced a spectucular amount of vaporware and made a lot of effort to not sell electric cars. The Bolt is nice but GM keeps hinting that they aren't making a gross margin on it. And meanwhile Tesla has developed brand value. (I think the real competition comes from China, and yes, that is serious competition, but it'll take a while to get to the US, and Tesla is actually selling very well in China.)

    If the market mood drops a lot and everything drops in valuation, you might make some money on your puts. But not a lot. (My average purchase price for Tesla is below $220. My super pessimistic "market hates Tesla" model puts a floor on the stock price at $180.)
     
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  7. neroden

    neroden Happy Model S Owner

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    I've done pretty well selling DOTM options and awaiting expiration (I'm collecting time value). But it's much worse to buy DOTM options; you are shooting for the moon and losing time value while you do so.

    I have to agree: Options have an awful lot of weird sorts of risk which is not obvious to the newbie. Understand them forwards, backwards, and upside down before making trades... and you'll probably still make some screwups in your first year. And your third year.

    If I were going to bet that TSLA would go down (a bet I would not make), I would sell bear call spreads.
     
  8. azred

    azred Member

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    Seek Alpha and Ye May Find. Bait baby bait.
     
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  9. Yggdrasill

    Yggdrasill Active Member

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    Yes, good luck. Chances are pretty good that TSLA will be over 500 in January 2019.
     
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  10. DaveT

    DaveT Searcher of green pastures

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    Tough one. From your post it seems like you haven't done enough due diligence. Looks like you've spent $15k and are going to spend $75k in total. So before you do that my suggestion is to do the following. It shouldn't take more than a day or two, and will be well worth your time.

    Go to you local supercharger and hang out there all day (or over two days) and meet at least 20 random Tesla owners that would be willing to answer a few questions from you. Ask if the "over-promising" you mentioned is a problem to them. Ask them about how they feel about their car vs other cars. And basically confirm (or not confirm) your major assumptions behind your "investment" thesis (ie., regarding competition, quality problems, etc).
     
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  11. neroden

    neroden Happy Model S Owner

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    Dave, look at his location. Tesla does not exist in Prince Rupert. And he absolutely should not by a Tesla while living there. To do proper due diligence on TSLA stock, he needs to visit Vancouver.
     
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  12. DaveT

    DaveT Searcher of green pastures

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    Ah, then definitely he ought to take a few days in Vancouver to do some due diligence. But most people are too lazy to do so. They'd rather go on hunches.
     
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  13. RobStark

    RobStark Active Member

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    According to Consumer Reports Tesla Model S had average reliability and Model X had below average reliability. But Model X was still had better reliability than Mercedes S Class.

    Now, Tesla will not focus Model S and Model X on relentless or "reckless" growth but steady state production of 25k units per quarter,improving quality and margins. This is easier when not expanding production 50%+ YoY.
     
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  14. GoTslaGo

    GoTslaGo Learning Member

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    Don't forget!

    Most of you guys are long time option traders, so have all trading levels available. New option levels are very limited. Pretty much only sell covered calls and possibly buy puts. Doubt OP has TSLA to sell covered calls given post and outlook. So buying puts would be next best if not only option. Now ITM vs. OTM that's where the reading and learning about how to use options come into play. Still reading and learning myself... and yes, I'd love to sell puts on TSLA, but can't :mad:.
     
  15. alloverx

    alloverx Member

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    Even if Model-3 is running late, there will be lots of other Tesla announcements to fill the air. I love how they are pushing the other car makers and then VW played into their hands big time. Hard to see 2 years out in the EV car space. Tesla could be double+ the value now or 1/2 if they struggle but Elon is loved.
     
  16. ValueAnalyst

    ValueAnalyst Active Member

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    Wow. Shorts are trying every method possible to infiltrate the TMC community from fake accounts to fake threads.

    As I always say to shorts: thank you so much for keeping the stock low while the rest of us buy more.
     
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  17. Jonathan Hewitt

    Jonathan Hewitt Active Member

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    Kind of off topic, but for anyone who wants access to all types of options trades TastyWorks doesn't have "levels" like most brokers do. They believe you need all types of options trades in order to be a successful options trader. Crazy idea, huh? Their commissions are $1/contract to open (no ticket fee) and all closing orders are $0 commission. You can do better if you are a high volume trader or negotiate at other brokers but it's very competitive. Tastyworks is also only a few months old so they are still incorporating some features they've promised. I still use OptionsHouse as my main brokerage because I have negotiated rates there but TastyWorks is a lot better than many brokerages I've seen out there.

    tastyworks - account opening

    TastyWorks is associated with TastyTrade, who puts out free options education. Even if you don't have TastyWorks I highly recommend watching/listening to TastyTrade for all options traders.

    And to the thread starter, to raise the chances of profit and lower max loss you should sell some Jan 19 $150 puts or something against your $220s. Your max loss is reduced by over a third this way while still retaining a pretty decent profit potential (lol). For your current trade, achieving max loss is ~82% likely if held to expiration as priced by the market so you really should do something about reducing your max loss possible, but what do I know.
     
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  18. Jonathan Hewitt

    Jonathan Hewitt Active Member

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    Too late to edit my post but wanted to add a disclosure that I get referral credits if anyone uses the Tastyworks link I posted to open an account. I obviously am not trying to push it since I readily admit OptionsHouse is my main brokerage but wanted to be clear on it.
     
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  19. TexLaw

    TexLaw Member

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    Good point. I should have been more specific and state that buying DOTM contracts as if they were a guaranteed lottery ticket or slot machine payoff is the sucker's bet. It was late. :)

    I regularly sell OTM puts (sometimes ITM) for time value, but that's almost always as a part of a strategy where I am happy with any income (i.e., happy to buy the stock at a better price; happy to collect the premium and move on).

    If I were looking to short TSLA and use options to do so, I would look at two options. If I wanted risk defined, I'd look at bear put spreads. Otherwise, I would look at a near ATM synthetic short I could get for $0 or a small credit.
     
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  20. neroden

    neroden Happy Model S Owner

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    Huh. Have you applied for a higher level? At Schwab, selling cash-secured puts is "level 1" options access and it's not that hard to get -- I got it with no previous options experience, although I *did* have over 25 years of stock trading experience.
     

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