Let me tell you and others a bit about myself because the story has value for a Tesla investor. For various reasons, I found myself with only about 28% of the funds needed to retire if I wanted to keep my current house, and I'm no spring chicken any more. I learned about Tesla early on when I ordered a 40kwh Model S and started buying when it was at $28 a share. Alas, my house not far from the beach needed refinancing at a lower interest rate, and I sold the Tesla stock right before the refinancing at $44 a share, just about when it was going to explode upward. By the time I finished the refinancing from hell (the mortgage broker headed off to Italy and intentionally scuttled the deal because interest rates had gone well above my locked-in price and she didn't want to sour the lender's opinion of her). I fired her and by the time I eventually refinanced the house with someone else, Tesla was trading for $120 a share. Yikes, I had lost my chance at this fabulous stock. Then I started studying Tesla and realized that the upside potential was quite a bit higher than $120. I'd need more money though, and learned that if I a rolled my 401K into an IRA, I could trade individual stocks. So, I made it happen and bought a lot of TSLA. By the time my Model S was completed in mid 2013, I was able to pay for it with profits from my TSLA stock appreciation.
Owning stock in TSLA was a good deal, but I wanted to move things along a bit quicker and learned from a TMC member named Chickenlittle that you could sell stock when the stock price was low, leverage it by buying deep in the money leaps, and then roll those deep in the money leaps forward almost indefinitely because there was practically no time value involved. Gradually, as the stock appreciated in value, you sold leaps and put the money back into stock. It was a good plan, and although I was good at buying or leveraging when things were scary and SP was low, I wasn't as disciplined at deleveraging as the stock price went higher. Thus, I mostly rode leaps up and down the steep climbs and breathtaking descents that TSLA took, but I always recovered, because there was no time value lost and I always rolled forward with 6 months to go so that my leaps never expired. At one point I was at 60% of my needed funds for retirement.
Come 2016 and the Model 3 reveal, I became too confident in TSLA's prospects for that year. After the stock peaked in March and then descended to 230ish, I bought lots of call options, many well out of the money. I was going to hit 100% this year! The problem was that I didn't understand the principle of "sugar happens". Model X was doing poorly in the ramp-up and Elon then decided that Tesla should acquire Solar City. These two negative catalysts cause the stock price to begin a downward journey, and this time I rode the stock price down with these out of the money calls. By the time we bottomed out around 180, I had only about 19% of the money needed to retire. Moreover, I had failed to connect the dots of what should have been critical information. During the summer, for example, I met a former market maker and asked him what he thought about investing in Tesla. He said there's money to be made in Tesla, but not until Solar City was resolved one way or the other. I should have realized that others like him, institutional investors in particular, were steering clear of TSLA until the Solar City issue was settled. Strike one. With the low volume, I started noticing curious trading habits of the short sellers, things we take for granted now a days like "mandatory morning dip", "capping", and "downward slope into the close". I was ridiculed by some for my beliefs that the shorts had this much power over the pricing of Tesla, but gradually my extreme positions didn't look so extreme when seen over a long enough period of time. What I failed to realize was the extent that large numbers of stock-manipulation-savvy shorts could pull down the value of a stock when the institutional investors were sitting on the sidelines. Strike two.
Many of the excellent contributors to TMC have disappeared over time, and I think a common reason for their disappearance is shooting themselves in the foot with bad option plays. I was well on my way towards becoming one of them. Fortunately, I was given an opportunity to recover. I noticed that when the stock price reached about $180, the shorts weren't able to push it down any further with their usual techniques. We had reached equilibrium with buyers at that point, even with the manipulations. And so I loaded up for the uphill run. I bought lots of Mar17 180s, which were bargain-priced at the time. After these appreciated by 350%, I rolled them into Jun17 180s and 200s and ran higher with excellent results again. By the time we hit 285 I had completed the transition back to stock and J19 deep in the money leaps. I had learned my lesson and now had 55% of my retirement funding intact once again.
Lessons? Capital preservation is essential. Don't invest in a fashion that is based upon hope and cannot survive a "sugar happens" event or two. I hope I have learned (time will tell) to stick with a plan if the plan makes sense. If I had merely held stock, I'd be slightly ahead of where I am right now, so that would have been a decent plan. If I had faithfully stuck with the leveraging to deep in the money leaps when the stock price is low and gradually moving to all stock as the stock price got high, I would be in much better shape than I am now. Nonetheless, I am thankful, and here's why. I went over the falls holding way too many out of the money calls and I survived! I need not make that mistake again. If Tesla sinks ridiculously low again, I'll buy some OTM calls if the company's prospects are sound, but I'm no longer keen to play that game. I've had a remarkably influential education this past year, I survived, and I'm a smarter investor now because of it. All things considered, I'm a lucky man, and I have no doubt I'll hit 100% retirement funding within a couple of years. I'm just no longer trying to rush that moment by taking chances that don't make sense.
Disclaimer: My house in Hawaii has appreciated so quickly that there's more equity in it than in my IRA. I could lose every penny in my IRA and still retire with an existence that appeals to me, but not in this house. I never risked something I couldn't afford to lose.
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