Short-Term TSLA Price Movements - 2013

[Julian Cox]

ha. this is just momentum with after-earnings profit taking shaved off the top isn't it.

Sorry I should clarify that, this is a transition to a momentum stock from a story stock, still effectively its own asset class with disconnect from automotive industry comparison model beginning to sink in.
Profits reasonably assumed from here on out with affect yet to overtake rash of profit taking from early high risk/VC style players to be replaced by more large cap mentality, bears lost credibility, sandbagging lesson learned by at least some analysts. $170 still safe but slower and more solid when it arrives.

Johan I think we are still on.

JC

 

[sleepyhead]

I sold some calls today since I over-allocated my retirement account with TSLA prior to earnings, in part thanks to your well-done second quarter analysis. What force will drive TSLA upwards before the next earnings report? There won't be much news, and the last two days of trading make it look like the market doesn't have the appetite for another run-up.

Tesla reacted exactly the way I thought it would, i.e. started strong on Thursday with a weak finish and a flat day on Friday (I even posted in this thread yesterday that today will be a flat day). People are still digesting earnings, will probably go check out the car on the weekend and then start piling in on Monday.

This is exactly the same thing that happened to FB a couple of weeks ago: It reported strong earnings on Wednesday and then had a similar day to TSLA on Thursday (but it was up 30% or so) and then a flat day on Friday. Next week it opened up strong and added another 15%.

I expect TSLA to finish around $165 - $175 next week as well. Let's just hope that the overall market doesn't start correcting.

 

[sub]

I'm new to the options thing so excuse my ignorance. I'm long TSLA, don't want to give up any of my shares, but I've been trying to learn a way to lock in some of these profits without actually selling my shares and losing leverage for the long term and also having to pay short term tax. It seems my options are to sell some or all and take profits, buy some puts, or write covered calls like Curt described? If your getting cold feet, writing covered calls is the best thing to do at this point since you essentially lock in a higher price than the stock currently trades at, with the risk that you lose out above $185. My gut feeling is the volatility may calm down a bit, but I also do think Elon will reach these goals he has laid out and then some and I don't think 200+ by January is out of the question. What about writing covered calls with a higher strike price? I have no idea what those are worth, probably not much.

The math just seems to make more sense, you make money writing a covered call vs buying puts. I'm guessing I'm looking at this completely wrong.

 

[DaveT]

What force will drive TSLA upwards before the next earnings report?

1. As short interest decreases, those borrowed shares are no longer available (currently there's a temporary excess of available shares due to the large number of shorts). Thus, you'll have less shares available, which means more scarcity (and upward pressure on price).

2. If more funds/institutions (especially long-term buy-and-hold funds/institutions) buy TSLA than sell TSLA, then you'll have more of the float taken off the table short-term. More scarcity of shares means upward price pressure. I've mentioned this before but it appears Fidelity's Contrafund has taken a liking to TSLA (I'd suggest doing research on them) and I think that's big/good news as Contrafund is a trendsetter.

3. As more people become Model S owners (or have friends with Model S's) or become aware of the company/car, they in turn will likely buy some stock. As long as more Tesla "believers" buy stock than sell stock, then again you have shares taken off the table short-term. More upward price pressure.

4. Hyperloop announcement on Monday. Not sure of the impact on the stock, but I'll just mention it because Elon suggested that if nobody does anything with the Hyperloop in a several years, then Tesla might get involved. This links TSLA with the Hyperlook in a small/minor way, but could be significant if Hyperloop is jawdropping amazing.

Of course there are downside risks as well:
1. Broader market correction or economic downturn.
2. More long-term holders sell their stock than new long-term holders buy.
3. Tesla has serious execution mistake, and thus mood turns seriously against TSLA.
4. Short interest increases from now until Q3 ER and/or shorts orchestrate successful short attack that changes mood around TSLA stock and keeps it trading at sub 150 levels.

Would love to hear other folks' thoughts on this... as the more discussion, the better.

 

[Julian Cox]

Originally Posted by emupilot
What force will drive TSLA upwards before the next earnings report?


Should be less volatile, rollover of EU orders recognized as sales, closing in on 25% Gross, large caps going in for the long haul on assumption of profits from here on out, maybe an easter egg from the WH (due a petition response), maybe some action to get to the $184 for bonds.

- that's enough for now.

 

[gregincal]

The math just seems to make more sense, you make money writing a covered call vs buying puts. I'm guessing I'm looking at this completely wrong.

The risk is that if the stock completely tanks you still lose a lot (if say the stock halved in price you would have only mitigated the losses a little). It all depends on what you see as likely.

 

[RABaby]

Nobody has mentioned it yet, but I for one find it incredibly amusing that this is a forum populated primarily by TSLA bulls and much of the talk - certainly in this thread, regards the buying of shares, or employing various trading techniques with options. Now Curt Renz has sold covered calls at a fairly low strike price (if one is a hard core Bull) and after announcing his action, discovered some who questioned his reasoning. All entirely valid and understandable because people are trying to learn and his strategy isn't in question. The amusing aspect of the trade is that someone else here has probably purchased the calls. Am I the only one who sees the humor or irony in that?

 

[austinEV]

It just means the mood is turning short-term neutral, long term bullish. But yeah we sound at times like a Justin Beiber fan group bitterly arguing about who loves him the most and who just loves him a whole lot.

I sold my calls. Does that mean I am turning bearish? Not at all. a month ago I had 70% of my net worth in TSLA stock and options (MOSTLY options). maybe 10% in other non-TSLA junk (why, amiright?) and 20% in cash. then the GS spike hit and I used the cash to buy calls at the bottom. Now I am 90% TSLA going in to the earnings. So I got the big upward move I was hoping for. Now I am de-leveraging back to stock and cash, ready to reset. I also think the market in general needs a breather down to the 200 day MA and a momentum stock like TSLA stands to get hit hard. If it goes up forever I profit too.

Edit: I have no idea what goes on in Justin Bieber fan group forums, really...

 

[DaveT]

The "short TSLA" movement and volatility implications

Alright guys, I'll pose a question. How can volatility go down (or away) when there still exists a very strong "short TSLA" movement (according to Cramer).

Let's examine this "short TSLA" movement. Any movement needs some basic ingredients:
1. Ideology
2. Leaders
3. Strategy

So the ideology is as follows: TSLA is a sucker company/stock that will be crushed when the giants start making real EVs. All people who invest in TSLA will be wiped out as TSLA will become bankrupt and demolished by Toyota, GM, Ford, BMW, Mercedes, etc. Investors are lured in by hype and misdirected enthusiasm. Once people realize TSLA is shame, they will flee the stock and it will come tumbling down, as well as the company.

Leaders: some private hedge fund managers, some writers on hire, some analysts being influenced, etc. They share deeply in the above ideology.

Strategy: spread tons of FUD (ie., TSLA over-valued, compare valuation with GM/Ford, etc.), execute coordinated short attacks and eventually the combination will cause the stock to crumble

Reaction: after a short attack (ie., at 97, 115, 126, 143) they're temporarily successful but the stock recovers, the "short TSLA" movement thinks it's naive investors joining the TSLA hype and making a huge mistake buying the stock. Thus, the higher the stock goes, they look at it as another opportunity to make more money as the stock has more room to fall. Sure, they might have some short-term losses, but it's nothing compared to their gains when the stock crumbles.

As of 7/26, the "short TSLA" movement was alive and strong (with even growing short interest), and I have no reason to doubt it's still not alive and strong.

So, the question is with such a strong "short TSLA" movement, how can we expect volatility to go away soon (both directions)? And how can we expect the stock price not to have upward pressure as these shorts eventually have to cover?

Just some thoughts to think about. Would love to hear your ideas and share in discussion with everyone.

 

[Sus]

Originally Posted by emupilot
What force will drive TSLA upwards before the next earnings report?


Should be less volatile, rollover of EU orders recognized as sales, closing in on 25% Gross, large caps going in for the long haul on assumption of profits from here on out, maybe an easter egg from the WH (due a petition response), maybe some action to get to the $184 for bonds.

- that's enough for now.

What are your reasons for thinking the stock might be less volatile?

 

[TSLAopt]

Short interest as of 7/31/13 (settled date) was published today (Tesla Motors, Inc. (TSLA) Short Interest - NASDAQ.com). As TSLAopt has noted it takes 3 business days to settle, so the 7/31/13 settled date is reflective of short interest as the end of trading on 7/26/13 (closing share price: $129.39).

As of 7/26/13, 25.7% of the float was short (19.78m of 76.93m shares in float). This was an increase from 7/10/13 (7/15 settle date, closing share price: $122.27), when 24% of the float was short (18.49m of 76.93m shares in float).

Settlement Date	Short Interest	Avg Daily Share Volume	Days To Cover
7/31/2013	19,783,866	12,231,921	1.617396
7/15/2013	18,491,029	8,684,647	2.129163
6/28/2013	19,815,686	8,152,764	2.430548
6/14/2013	19,929,119	10,040,777	1.984818
5/31/2013	18,584,615	15,751,250	1.179882

thanks for the shout out DaveT...the next published short interest in a couple weeks will be reflective as of the end of day this Monday (when those are settled n Aug 15th) so that will be über interesting to see the change...any guesses? I will guess it increases to approximately 21mm shares as long assuming there isn't some dramatic move on Monday.

- - - Updated - - -

I am pleased that the short interest remains at these levels as it gives me confidence that tsla can continue to go higher. The last thing I want is for tsla to become uniformly loved and praised (see apple) and for the short interest to become minuscule. If/when that happens (hopefully many moons from now), I will consider paring my position as there will be no one left to buy tsla.

Agree 100% with this

 

[Convert2013]

I'm cautiously optimistic going forward. There is a distinct possibility that without meaningful catalysts the stock could begin a slow decline. Or it could be that we in this forum had already been expecting these results for weeks and are now going "so what?", while the market will keep pushing the stock up. I think the stock needs to take a breather for some time while we monitor changes during Q3 -this will give me time to gather more funds to buy more shares before the stock climbs too much more

 

[Mr. Farmer]

I am pleased that the short interest remains at these levels as it gives me confidence that tsla can continue to go higher. The last thing I want is for tsla to become uniformly loved and praised (see apple) and for the short interest to become minuscule. If/when that happens (hopefully many moons from now), I will consider paring my position as there will be no one left to buy tsla.

What you just stated is that if there aren't any bears left to cover their shorts, there won't be anyone left to buy TSLA. The smart bears would hedge their position with calls, unless they learned nothing from Q1... If they want to close their position, all they have to do is excercise their calls which will result in the physical delivery of stock and no price appreciation. Options expiration Friday is next week... Momentum stalled today... Calls are cheap. TSLA is not.

 

[DaveT]

The smart bears would hedge their position with calls, unless they learned nothing from Q1... If they want to close their position, all they have to do is excercise their calls which will result in the physical delivery of stock and no price appreciation.

Even of shorts hedged with calls all that means is they can purchase shares for whatever strike those calls were. But prior to Q2, calls were very pricey so I doubt they hedged with calls close to the money. It would be way too expensive. So they might have hedged with deep OTM calls (because it's more affordable considering the high option premiums) to protect risk. But those calls probably are not even in the money right now.

Even if they were and they decided to exercise, then after they received the stock then wouldn't they still need to give that stock to the party whom they borrowed the share in the first place to short? Thus whether the stock is from exercising a call or from buying stock, that share is taken off the table if there's not another short to take its place. Thus this lowers the number of shares available, providing more scarcity and more upward price pressure.

Please correct me if I'm incorrect.

 

[EarlyAdopter]

Options expiration Friday is next week... Momentum stalled today... Calls are cheap. TSLA is not.

Calls weren't cheap earlier in the week, before earnings came out. IV was through the roof. Hedging TSLA would have been anything but cheap.

I'm curious, was your hedge sufficient? Did you realize enough delta to offset the loss in the underlying? And, did you survive the IV crush?

Oh, and welcome to the forum. This could get interesting.

 

[Julian Cox]

What are your reasons for thinking the stock might be less volatile?

Just looking at the waves of rubbish coming from the shorts. These are all the same arguments seen before, and these arguments have been proven to be loss making. Longs seem emboldened to respond, yes but who cares, you lost your shirt last time you said that.

The truth is that Tesla is beyond reach of retail shorts whining on about how GM or BMW will eat Tesla's lunch, and is beyond reach of a sensible prediction of business failure.

There is an amazing video on Youtube of a young David Einhorn making a short-thesis for Allied Capital. He patiently pointed out in a logical manner that the ALD stock valued a load of things that were demonstrably without value or logical frame of reference. Then the stock crashed to nearly zero.

By comparison there is no logical short thesis for TSLA. There is wild speculation that the price is too high and will somehow plummet without any good reason to do so. The P:E ratio is too high compared to what exactly? GM - the one that has gone on record to say it is worried about getting disrupted by Tesla?

Under any circumstances who but a complete moron shorts a business making stuff as fast as it can for a line of customers out of the door and all around the block.

 

[ongba]

What you just stated is that if there aren't any bears left to cover their shorts, there won't be anyone left to buy TSLA. The smart bears would hedge their position with calls, unless they learned nothing from Q1... If they want to close their position, all they have to do is excercise their calls which will result in the physical delivery of stock and no price appreciation. Options expiration Friday is next week... Momentum stalled today... Calls are cheap. TSLA is not.

That is only partially true. When I stated that there would be no one left to buy tsla, it was not exclusively directed to the bears, although the less sophisticated bears (the ones who didn't hedge with calls) will help fuel the rise in stock price. I meant it in a much broader sense, as if/when tsla becomes so popular (my belief, and yes, I have drank the kool-aid), that all the institutional funds and retail investors have bought, then caution is warranted, as their would truly be no one left to buy tsla, and it could then suffer the same fate as several other growth stocks in the past such as aapl, dell, MSFT, intc, Cisco.

 

[TSLAopt]

What you just stated is that if there aren't any bears left to cover their shorts, there won't be anyone left to buy TSLA. The smart bears would hedge their position with calls, unless they learned nothing from Q1... If they want to close their position, all they have to do is excercise their calls which will result in the physical delivery of stock and no price appreciation. Options expiration Friday is next week... Momentum stalled today... Calls are cheap. TSLA is not.

1)who do you think sells them the calls? Answer is market makers who do not sell naked calls, they hedge by going long the delta equivalent of the stock.

2)who do you think delivers them the stock? Answer is the person or market maker who sold the call. That person must go out to the market and buy the shares (or most likely has bought them already by the time the options expire ITM) to deliver the stock....the shares to not get created out of thin air.

- - - Updated - - -

Oh, and welcome to the forum. This could get interesting.

agreed, very interesting first post by Farmer...seems like there is some intended misinfo that Farmer may have been trying to spread or he just doesn't know what he's talking about. If the prior then he could be a bear himself...a lot of bears if they're smart would be trolling these boards looking to instill more doubt

 

[Johan]

That is only partially true. When I stated that there would be no one left to buy tsla, it was not exclusively directed to the bears, although the less sophisticated bears (the ones who didn't hedge with calls) will help fuel the rise in stock price. I meant it in a much broader sense, as if/when tsla becomes so popular (my belief, and yes, I have drank the kool-aid), that all the institutional funds and retail investors have bought, then caution is warranted, as their would truly be no one left to buy tsla, and it could then suffer the same fate as several other growth stocks in the past such as aapl, dell, MSFT, intc, Cisco.

This, of course, must be true. Otherwise the stock would rally forever and the market cap and stock price would approach infinity, which naturally can never happen. At one point even Tesla will go from growth stock to a safe, established industry stock. Unlesd of course the company can keep budding of new ventures, go in to new sectors, apply the concept of translational research/science to real-world products and applications (which I believe the may be able to). Never stop moving even though you are by far in the lead. This is very hard to do. Keep pushing new frontiets even though you could just slow down and reap the profits of your massive head start for years. Keep reinvesting in R&D instead of paying dividends. Take new risk in new markets instead of being cautious and just focusing on not loosing the market share you already have. As long as Elon is chief I have confidence. If he would also be able to create a corporate culture with these ideals and values this could continue for decades or centuries. This will be the biggest challenge of all. A company built around one individuals exceptional qualities has an achilles heel: at one point this person must leave one way or another (look at Apple after Jobs). This probably belongs in the long term fundamentals thread

 

[TSLAopt]

That is only partially true. When I stated that there would be no one left to buy tsla, it was not exclusively directed to the bears, although the less sophisticated bears (the ones who didn't hedge with calls) will help fuel the rise in stock price. I meant it in a much broader sense, as if/when tsla becomes so popular (my belief, and yes, I have drank the kool-aid), that all the institutional funds and retail investors have bought, then caution is warranted, as their would truly be no one left to buy tsla, and it could then suffer the same fate as several other growth stocks in the past such as aapl, dell, MSFT, intc, Cisco.

It will be a very long time before no one wants to buy TSLA. There are still so many people in the world that have yet to see or test drive one. It would be interesting to know how many Models S owners also own the stock and what % bought the stock after driving the car (test drive or purchase). I would bet it is a higher percentage than any other consumer or auto product/company in history. Also keep in mind a large category of people buying model s are the ultra wealthy with deep pockets to buy a lot of TSLA stock.
this is ultimately why the shorts are doomed and having the best product/service out there m if profitable, always trumps the shorts