Short Squeeze Strategies

[kbM3]

I am thinking ahead to various scenarios and trying to have a plan in place in the event this short squeeze accelerates. I believe Warren Buffett’s advice of being greedy when others are fearful (e.g. TSLA = $179 / share) and fearful when others are greedy (e.g. EVERYONE is talking about TSLA millionaires and what crazy returns you get, and it’s a cant lose... ) is very wise.

1) My history:
What I’ve done to this point is to increase leverage as the stock price decreases and reduce it as share price increases. I’ve done this through use of margin and pure shares.

E.g. I was at 125% pure Tesla shares when the stock 1st broached $340.00.
I couldn’t believe when it dropped to $245 and increased leverage to nearly 200%. This was successful, yet criminally stupid because for my situation, goals, security, it was FAR TOO RISKY.

Since then I’ve still increased leverage during drops and increased it on rises but with ever safer amounts of leverage, and I am now 80% TSLA and the rest non-TSLA stocks. I arrived at this because if Tesla retreats, I will probably rebuy the shares at lower prices than I sold on the way up and just periodically rebalance between Tesla and non-Tesla. So it’s a simple plan and gives me psychological comfort, nice safety buffer, relatively good growth...

It will be very tough if the big fund managers decide again Tesla is really only worth $380 per share, shorts get gleeful again as the stock starts falling and jump back in, and keep driving the share price lower..., but I will be ok with it, because I will be in better shape than I was when it was last at $380 per share, or $180 per share. It hurts like hell to only get 80% or so of the gains I would otherwise if I just held pure shares, but I need that peace of mind should Tesla drop from here.

Through this forum I have learned about options and I’ve just added some catastrophic insurance puts (e.g. Model 3 batteries all have a fundamental flaw that only shows up after 5 years, and are immensely dangerous...). And I’ve added some call options (wish I had understood them far better when TSLA was $180 per share)

2) My Steps from here:

I am totally fine with my current plan, EXCEPT in the case of a violent short squeeze and retraction. E.g. stock rises to $1500 per share (Tesla stock rise fuels a bunch of buying by people who only have heard about the stock and want to board the gravy train), and then drops back to $400 after shorts rocket fuel runs out (short interest < 5%), and big funds sell.

I am considering actually decreasing my leverage even further as the share price rises (e.g. 70% then 60% shares, then maybe even lower...). I am also considering de-leveraging through options.

3) EVERYONE Should Have a Plan

• Think ahead for negative as well as positive scenarios. Mentally test it with extremes like jumps to $10k per share or $0.00 / share, as well as more reasonable cases.
• This plan should NOT include past net worth, previous share prices paid (except for tax consequences) any history whatsoever. However you arrived at your current allocation, net worth, number of shares is completely irrelevant. The only thing that matters is your present state.
• Don’t base your judgment for TSLA being over-valued vs. undervalued on the share price (except for trying to think through market psychology). What matters is company valuation. E.g. Tesla’s real current value is the sum of all future earnings discounted to the present. What is that highest point, lowest point, likeliest outcome. At what market valuation today would you consider Tesla fairly valued? If you’re okay with the psychology of the share price dropping dramatically for several years, then you should hold TSLA until it reaches your fair discounted value and sell when it’s above it and you have another investment opportunity that you determine is undervalued.
• Think through what a rapid overvaluation might look like. I remember a post by @StealthP3D where he referenced everyone and their neighbor talking about some “It stock”.
  
• If you are in a situation where you need a very safe haven (non-Tesla, cash, bonds, TSLA puts, assets (like a Model S and don’t have one, think about building it now, or to start building it as the stack rises. Think of it like a storm shelter.

I would love to hear other’s plans, thoughts, advice... I’m really writing this post today because the rapid price rise yesterday and @ReflexFunds excellent dissertation on the positive feedback loop that may provide even more rocket fuel on top of short covering, made me wonder if we could see an acceleration of the squeeze and what I should do.

I am normally loathe to give hard and fast advice, but I feel the advice above is pretty safe to give,

Geaux TSLA!

 

[pz1975]

I’m buying large numbers of way OTM calls for February and March and paying for them by selling OTM puts expiring 1-2 weeks out. If the stock drops a lot in the short-term I will have to roll those puts out, but otherwise I am basically buying FOMO short squeeze insurance for free. Hoping to eventually get to 400-500 call contracts. If this really develops into a true short squeeze, I want to be able to take major advantage of it and don’t want to have to sell any of my core share holding.

 

[humbaba]

Tesla account back up. I don't see anything different.

 

[willow_hiller]

Tesla account back up. I don't see anything different.

Looking for this? "Your account isn't available right now. Try again later."

 

[humbaba]

Looking for this? "Your account isn't available right now. Try again later."

Wow. I really posted in the wrong way & place. Sorry folks.

 

[jeewee3000]

I would love to hear other’s plans, thoughts, advice... I’m really writing this post today because the rapid price rise yesterday and @ReflexFunds excellent dissertation on the positive feedback loop that may provide even more rocket fuel on top of short covering, made me wonder if we could see an acceleration of the squeeze and what I should do.

I'm not a firm believer in a "VW-type short squeeze" since it has been preached on TMC since as long as I can remember.

That said, if it would happen and the stock spikes, here is my strategy:

I have a sell order for about 7% of my shares at:
$1000
$1500
$2000
$2500
$3000
$3500
$4000

The reasoning is this:
- if a spike only reaches $900 or so, I'm not considering it a short squeeze and don't expect a sudden drop. If it were to happen: meh, you can't plan for everything;
- if $1000 per share is reached in the short term, I want to unload some shares gradually just in case we spike down so I can buy more with the profits.
- if we spike further, I'm taking money off the table gradually at rates of $500 per share. These are values that I won't feel mad at myself for having sold. (I won't feel mad to have NOT sold, because I do believe we will reach $4000 at some point, even though that could be ten years away.)
- if we spike beyond $4000 I will have half my shares left and I can maybe (IF I spot the spike in time) sell some more. Most likely I wouldn't be able to react fast enough, but then again, I'd already have profited greatly from the spike.

Do I think a spike is likely? No. Is my mind at ease for if the short squeeze should come? Yes.

What I'm fretting over way more is when we will move to $1000 gradually. I'd like to go all out in JUN'22 LEAPS with a $1015 strike price but if Wall street keeps TSLA range bound between let's say $400 and $700 until then I'd be screwed. Or if there is a big recession, etcetera.

FOMO is a real thing which I'm conciously battling. The counterpoint is peace of mind (à la "I'm already happy with the gains I've got").

Not advice. Good luck to all.

 

[ammulder]

I'm not a firm believer in a "VW-type short squeeze" since it has been preached on TMC since as long as I can remember.

That said, if it would happen and the stock spikes, here is my strategy:
...

That sounds like a solid contingency plan. Thanks for sharing!

If I did the math right, you'd take out $17,500 per share sold at each step (that is, per 7 shares), if it suddenly spiked all the way up. I have to take a moment to shake the stars out of my eyes when we talk about numbers like that, and remind myself that this isn't really going to happen.

But still good to have a contingency plan in place in case it does.

I guess my only real question is, when do you adjust the bottom tier up? What are the odds of a spike up to $1000 if the upcoming Q4 earnings call is way more positive than expected (you know, like the Q3 call). But that's just more stars in my eyes, right? I suppose an event like that could trigger this kind of spike, but there's not really a reason to believe that it would cause a sudden sustainable doubling of the stock price that would make you unhappy your plan went into action.

 

[jeewee3000]

I guess my only real question is, when do you adjust the bottom tier up? What are the odds of a spike up to $1000 if the upcoming Q4 earnings call is way more positive than expected (you know, like the Q3 call). But that's just more stars in my eyes, right? I suppose an event like that could trigger this kind of spike, but there's not really a reason to believe that it would cause a sudden sustainable doubling of the stock price that would make you unhappy your plan went into action.

Again, you can't plan for everything.

If it shoots to $10.000 after ER I could kick myself for having sold half my shares so cheaply. But I've been following this stock for many years and know that is not going to happen. (If it does, it'll be a computer error or something rare and come back down instantly)

The "bottom" of $1000 is currently set because:
- I believe we cannot reach that price within the next month (my sell orders expire after one month, so there is no risk of "forgetting" they exist);
- it is a price that, if somebody were to offer me that amount per share within the next month, I'd say "Yes, please";
- last but not least, it is a price I believe could be reached with a sudden spike, so that I profit from my contingency sell orders. If I put my "bottom" limit order at $3000 I'd be pretty sure that even if we enter a VW-type-squeeze, that price would not be hit, rendering my entire contingency plan worthless.

So $1000 is high enough not to trigger with a gradual rise, and low enough to possibly trigger with a squeeze.

All of this is based on my gut feeling given my market experience (which is limited). But it's good enough for me.

 

[pz1975]

I’m buying large numbers of way OTM calls for February and March and paying for them by selling OTM puts expiring 1-2 weeks out. If the stock drops a lot in the short-term I will have to roll those puts out, but otherwise I am basically buying FOMO short squeeze insurance for free. Hoping to eventually get to 400-500 call contracts. If this really develops into a true short squeeze, I want to be able to take major advantage of it and don’t want to have to sell any of my core share holding.

Surprised there hasn’t been more discussion here. So far my strategy above is working well. I had about 200 way OTM call contracts (Feb and March) paid for by selling puts that are now also way OTM. To derisk a little bit (kind of hypocritical considering the plan but wanted to lock in some gain), I sold about 20% of them later in the day today, which paid off all of the intimate cost and then some profit. So the rest I have for free + profit from the sold puts. I bought some more way OTM calls for next week as lottery tickets as well so back to around 200.
Even if the rest go to zero, I’ll still have banked a nice profit and still can make a huge gain if the squeeze continues into the 700+ range.

 

[jeewee3000]

Even if the rest go to zero, I’ll still have banked a nice profit and still can make a huge gain if the squeeze continues into the 700+ range.

If the stock tanks after ER to pre-Q3 rally prices (let's say $350, that's a 40% drop), would you be safe with your sold puts? What's their strike price?

 

[pz1975]

If the stock tanks after ER to pre-Q3 rally prices (let's say $350, that's a 40% drop), would you be safe with your sold puts? What's their strike price?

$300, $350 and $400. I would roll out the underwater $400s, or maybe just buy the shares since I have cash on hand from profits and to back the puts.

 

[jeewee3000]

$300, $350 and $400. I would roll out the underwater $400s, or maybe just buy the shares since I have cash on hand from profits and to back the puts.

I think you're safe, but you never know with $TSLA

 

[pz1975]

I think you're safe, but you never know with $TSLA

So true. Been around for a long time so I always try to have a plan in case of big drops.

 

[SageBrush]

$300, $350 and $400. I would roll out the underwater $400s, or maybe just buy the shares since I have cash on hand from profits and to back the puts.

What does 'roll out' mean ?

 

[pz1975]

What does 'roll out' mean ?

Say I sold a $550 put for $4 expiring this week and the stock ends up at $540, what I would do is buy it back for $10 just before close and then sell another put expiring in the future for $10 (like a $530 expiring in 2 weeks for example), and hope it expires worthless. That way I still earn my $400 profit (100 x $4).

Roll out (or roll forward) would mean that the put I sold is the same strike price as the original one ($540), while roll down would mean that the strike price of the newly sold put is at a lower strike price (roll up would mean selling at a higher strike price, which would be more relevant if this strategy was done with a sold call that ends up in the money and needs to be rolled forward/out or up).

Technically I would more likely be rolling the put down since if I sold it at the same strike price (now in the money), I would be trying to increase my original profit, where what I would actually be trying to do is just try to make back what my original profit was.

 

[WarpedOne]

So, who will be willing to sell at $400 AFTER they've seen $1500?

All these strategies are bound to fail.
Buy and go away.

 

[TheTalkingMule]

If you can sell a portion of your position at $1500 and buy back in at $600, I think that's advantageous.

 

[winfield100]

If you can sell a portion of your position at $1500 and buy back in at $600, I think that's advantageous.

Post 3:1 split?

 

[jeewee3000]

So, who will be willing to sell at $400 AFTER they've seen $1500?

All these strategies are bound to fail.
Buy and go away.

I agree.

These strategies are only meant for an unexpected spike due to an unlikely combination of circumstances:
- shorts covering with too little shares available;
- algos reacting to SP rising fast, triggering an exponential rise in seconds/minutes.

The spike would in my mind only last for a few seconds/minutes, nothing more. Something like: $650, $700, $800, $1000, $1200, $900, $750, $600 all within the course of a few seconds/minutes.

As I posted above, I don't believe this will happen. But if it were, why not be prepared?

Of course I'm always upping my "good till cancelled" selling prices to about double the current SP. If we gradually rise like we have in the last months, I'm not selling anything.

 

[2virgule5]

This thread is going to pay off big times starting tomorrow