Hi ongba, sure I'll share my thought process for that decision for what it's worth. I'll go into more detail so that others can read this in the far future and hopefully glean some info on the thought processes of early TSLA investors.
First, some quick background:
1. I have my own price targets for the stock at various time points (Sept13, Dec13, Jan14, Jan15). Pre-Q1 ER I had more general price expectations, but the day of Q1 ER I did some general modeling and created price target ranges for those time points. I also take into considering possible sentiment at that time and thus my price targets are ranges. Also my price targets are based on actual revenue at that time (which are based on conservatively # units sold) and on P/E multiples I think investors will give depending on the current sentiment. An example of how I do some of my modeling, you can see this post: Long-Term Fundamentals of Tesla Motors - Page 25 . I've had to adjust my price target ranges at various points when it became evident that demand for Model S was greater than anticipated (thus boosting revenue and earning projections).
2. I try to keep a feel of what I think is a realistic near-term bottom price of the stock that assumes a decent economy and Tesla executing well. Meaning, I ask myself how far can TSLA fall on pure sentiment? I keep updating this number from time to time. At the time of the GS dip, that realistic near-term bottom price number was $100. I felt like it wasn't realistic to go under $100. In fact a few weeks (I think) before the GS dip I posted in this thread that I didn't think we'd ever see under $100 again.
3. Taxes. So I've got my holdings in a regular account, thus I've got short-term capital gain consequences for short-term gain. Further, I'm already paying a decent amount in taxes and don't want to be in a higher bracket (ie., top tax bracket). So, my strategy to this point has been to hold for 1+ yrs to take advantage of long-term capital gains. But in retrospect, I could have made a lot more money the past several months if I had just chosen to take the short-term capital gains hit. Reason being is I went on an option shopping spree on May 9th, the day after Q1 ER, and because of my tax concern I bought 2/3 LEAPs which I could keep for at least one year, and 1/3 shorter term options (Sep13, Dec13, Jan14). If I didn't have tax concerns, I would have bought mostly Sep13 and Dec13 options, and then rolled them out. An example is I bought Sep13 80 strike options for $6.80 and they're now worth $75. But I didn't roll them up, so even though it rose 10x, it could have been significantly more with rolling up. Instead of rolling them up/out, I've been planning on exercising them.
4. History. Just for more background. I spent most my liquid assets and cash on TSLA stock (mostly bought in Nov 2012, but started acquiring in Aug 2012). Then, I spent most of remaining cash on options the day after Q1 ER. After, I managed to scrape up remaining cash (ie., even selling things on ebay and craigslist, haha) and buying more LEAPs when stock was at 92 and 100. So, at the time of the GS dip I was all out of cash and couldn't sell anything w/o being liable for short-term capital gains. So, I was stuck on margin. But I had been thinking about margin in case of a good dip. In fact, the week before the GS dip, I remember telling my wife that if TSLA dipped under $115 then I would use margin to buy options.
Alright, with that background the GS dip happens.
1. GS puts out it's report. Stock starts tanking. I had been studying some technical analysis the past few months and the day prior I had noticed that the stock was in limbo of sorts (after a strong uptrend) and that the stock was very vulnerable to be pushed in a type of temporary downtrend. This was my conclusion based on charts and on some custom MACD analysis. So, I wanted to see how low the stock could go.
2. When it stabilized a bit at 109, I decided to buy some 145 Jan15 LEAPs (for $20) and 155 Jan15 LEAPs (for $17).
My reasoning was because I wanted to make an investment I could hold and not add to my income this year for tax reasons (#3 above). Further, I looked my outlook for TSLA stock was in Jan15, it was very difficult for me to see the stock under $200 (based on even very conservative models). My price target at that time was $300+. But I know things can go wrong so I figured the stock needs to be at above $165 in 2015 for me to not lose money on the 145 Jan15 LEAPs, and for the 155 Jan15 LEAPS the stock would have to be at $172. Even in a recession I thought TSLA could hit those numbers.
So in my mind I was 98% confident that I would make money on this. I liked those odds. I bought the LEAPs (on margin) on the GS dip day, but also put in some more limit orders before market the next morning but they never got executed (I was hoping it would dip a bit more, but was too optimistic).
My big mistake was that I didn't calculate all possible scenarios and returns on a spreadsheet. If I would have done that, I think I would have invested even more on the GS dip. At the GS dip, I was a bit mental'ed because I had looked at my brokerage accounts and noticed the amount it had gone done in one day. The % I was fine with but the actual amount was quite large it took me a while to process it. That left me a bit more cautious than usual.
But I remember going to bed that night when the stock closed at $109 on GS dip day and telling my wife... man, if we were really bold we would sell all our stock and LEAPs and change them all to short-term Dec13 150 OTM options (Dec 15 to have some margin of safety, but Sept 150 would be more aggressive and then roll up/out) and if the stock rebounded and ended the year at 200 I thought we could make 7-10x our entire holding/portfolio. And I told her the amount we would need to pay in taxes. It took a while to sink in. Haha. But I chose the more conservative route (which still netted a good profit so far) which I don't think was the best decision. I should have taken more time and worked out the numbers according to my conservative projections on a real spreadsheet (instead of in my head) and calculated all the tax consequences, and then I probably would have taken some more bolder moves.
Would love to hear some other stories.
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