Short-Term TSLA Price Movements - 2014

[CyberDutchie]

or (e) which is AJ is trying to align himself as much as possible with Elon as a way of brown-nosing as AJ wants:

1-Elon to like him more than any other analyst and to give him first crack at things from the Model X to Giga Factory, etc.
2-Elon to realize AJ is gong to do whatever he can to help EM's greater mission and if that means helping EM decide where he thinks the stock price should be (whether it be higher for a capital raise or lower bc Elon says so) then AJ will do hs best to help with that too

Well, AJ is loosing credibility fast with these kind of research notes. He's contradicting himself in so many ways. You believe something, set a target of $320, then you stand for it, regardless of pressure from the rest of the automotive sector.

Don't you find it odd that he comes out with this negative note (basically saying the stock price is too high for the short term) but not adjust his 1y price target? That means, officially, Morgan Stanley still believes that TSLA should be at $320 in Jan 2015.

And don't forget, the $320 target was set based on a computer model that had ridiculously low targets for deliveries of all Tesla cars all the way up till 2020. Since then, many indications from Elon & Co. that deliveries are expected to be so much higher.

 

[LonghornDub]

How does it have the same risk/reward as a naked put? For one, a naked put means you have no stock backing it, so if it goes south you have to come up with 100 shares at current value and you lose real money. Now if you had a covered put that would be a whole other story. Because you would be limiting your downside risk, By locking in a "bottom" price. But a naked put is not the same at all.

Yes, it is the same. In fact, it's exactly the same. There is literally no difference between selling a put and writing a covered call in terms of risk/reward at expiration. The only differences are the margin requirements, options permissions, and dividends/interest. You could Google this and find it 1,000 different places, but here are a couple:

MoneyShow.com: OPTIONS IDEA - One Is Best: Naked Puts or Covered Calls

Trade Smarter With Equivalent Positions -- "There are two commonly used trading strategies that are equivalent to each other. But you would never know it by the way stock brokers handle these positions. I'm referring to writing covered calls and selling naked puts."

...so if it goes south you have to come up with 100 shares at current value and you lose real money.

I think maybe you're confused about the obligation imposed by a naked put. If you've got a naked put, your obligation is not to "come up with" 100 shares--your obligation is to buy 100 shares at the exercise price. If the stock tanks and you own a naked put, all you've got is an unrealized loss. You're going to be assigned the shares and forced to buy them above the market price, and you can continue holding them in hopes that the stock recovers later--the exact same as a covered call. And just like a covered call, you get to keep the premium from selling the option no matter what happens.

It's literally the exact same risk/reward. As I said, the big brokers have made this confusing by telling folks that covered calls are "safe" because you hold the underlying, and naked puts are "risky" because you don't. But that's irrelevant (unless the stock pays dividends, which TSLA doesn't). There's no difference in risk.

 

[Genebe]

I'm getting in this week. $250 or a smidge less sounds nice to me!

 

[aznt1217]

For those who are trading the short term. Christmas has come early for you guys again lol, same time as last year or close to. For those who are holding common shares... think of it as a way to buy you some more time for taxes and to save more money to dump in.

 

[Tasmanian Devil]

Good time to add a few shares long, if You have the small change.

 

[wallaby]

There may be another reason for the updated MS report. I imagine Jonas and Morgan Stanley are quite close with Musk, especially since they were the lead issuer for the last bond issue. Do they know something we don't, but can't yet reveal, and therefore, issued this obtuse report to get their clients out before the deluge? Or conversely, are they being passed over for another possible bond offering or some other financial transaction and so they're releasing this report as retaliation? I don't want to sound pessimistic or become a conspiracy nut, but I think the assumption that we on this board are always ahead of the game information-wise can't be true all the time. Furthermore, just as there was strong suspicion that the original MS report was influenced by their wish to become the bond issuer, this report may be released with something other than for purely informational purpose.

I can't speculate about what that means for the price going forward, but at the least we all now know how dependent TSLA's stock price is on Morgan Stanley's reports...

 

[gameon]

Are they creating space for Alibaba IPO or missing the story for downturn?

 

[uselesslogin]

Trade Smarter With Equivalent Positions -- "There are two commonly used trading strategies that are equivalent to each other. But you would never know it by the way stock brokers handle these positions. I'm referring to writing covered calls and selling naked puts."

How is it a naked put if you have $3000 cash in reserve? I would call that a cash secured put. It is interesting to realize they are the same thing but I can tell you my broker lets me do both in my cash account. They just want the stock and/or cash to cover it. To me it looks like selling a put is the best thing if I don't own the stock and selling a call is the best thing if I already do own the stock. Both have lower risk/lower reward than owning the underlying stock.

EDIT: OK, I see that I click on your definition and it matches what the other article calls a naked put. But still the first link is referring to a cash secured put which I have sold myself in my cash account with no issue.

 

[eepic]

I think maybe you're confused about the obligation imposed by a naked put. If you've got a naked put, your obligation is not to "come up with" 100 shares--your obligation is to buy 100 shares at the exercise price. If the stock tanks and you own a naked put, all you've got is an unrealized loss. You're going to be assigned the shares and forced to buy them above the market price, and you can continue holding them in hopes that the stock recovers later--the exact same as a covered call. And just like a covered call, you get to keep the premium from selling the option no matter what happens.

You're correct on this but need to be a bit more specific with wording, you have been writing "naked put" but referring to writing (selling) a naked put. Naked just means you don't have the underlying stock, but you can have a long or short position in the option. That's probably what's causing the confusion

 

[LonghornDub]

How is it a naked put if you have $3000 cash in reserve? I would call that a cash secured put. It is interesting to realize they are the same thing but I can tell you my broker lets me do both in my cash account. They just want the stock and/or cash to cover it.

It's not all that different than a "cash secured" put--the difference is, with a cash secured put, you are setting aside enough cash to buy the underlying (whereas with a naked put, your broker will be allowing you to use some margin--not just cash--to buy the underlying).

Since you're in a cash account, you don't have margin anyway, so a cash-secured put is essentially your version of a naked put.

To me it looks like selling a put is the best thing if I don't own the stock and selling a call is the best thing if I already do own the stock. Both have lower risk/lower reward than owning the underlying stock.

This is how a lot of folks approach it, and that's fine, but the point is just that the risk/reward is the same either way. Selling puts actually tends to be a bit more profitable in the long run because of volatility skew (OTM puts tend to command higher premiums than OTM calls, so you collect a bit more selling puts than calls). Since TSLA doesn't pay a dividend--and thus there's no benefit to holding the underlying in this scenario--if I felt the need to write a covered call, I would just sell the stock and write a naked put instead.

 

[uselesslogin]

This is how a lot of folks approach it, and that's fine, but the point is just that the risk/reward is the same either way. Selling puts actually tends to be a bit more profitable in the long run because of volatility skew (OTM puts tend to command higher premiums than OTM calls, so you collect a bit more selling puts than calls). Since TSLA doesn't pay a dividend--and thus there's no benefit to holding the underlying in this scenario--if I felt the need to write a covered call, I would just sell the stock and write a naked put instead.

Well it is an excellent point to bring up since it would make sense to sell whatever gets you the most money. So I will be sure to look into that next time.

 

[LonghornDub]

You're correct on this but need to be a bit more specific with wording, you have been writing "naked put" but referring to writing (selling) a naked put. Naked just means you don't have the underlying stock, but you can have a long or short position in the option. That's probably what's causing the confusion

You're technically correct, but the phrase "naked put," in context, always refers to being short a put. People don't talk about "naked long puts" (or calls), because your risk on a long option is always limited to the premium you paid for the option, regardless of whether you hold the underlying.

 

[vgrinshpun]

Perceptions of Morgan Stanley / Adam Jonas Note 9-15-2014

I am a Morgan Stanley client. I read the entire Adam Jonas note, and it is objectively, patently odd. Most of the article reads like a super bullish believer trying as hard as they can to spin anything they said in the last year negatively without any meaningful facts or citations, and without saying anything substantially negative about the company. I simply cannot believe that he himself believes some of the wild-swing claims he is making.

For an individual who has spent his entire career covering the automotive industry to suddenly say this is bizarre:



Really? No one will buy or want to drive cars anymore in 15 years? Disappearing steering wheels? In the USA? Double-u Tee Eff?

Now, I am about the most bullish person I have ever heard of about autonomous driving. I believe it is inevitable, essential and of huge benefit, and most of my neighbors and friends here on the East Coast think I'm crazy. But if you think Americans in particular will EVER part with buying individual transportation and the freedom that it literally buys, you *are* crazy. It just isn't logical that this would come to pass unless the entire planet was already as densely populated as Manhattan and we were dying by the millions due to transportation-related issues alone. It's not, and we're not. Humans outside a select few in 10 metro areas or so planet-wide have/love/want cars.

This note reads like AJ either:
A) Went "temporarily crazy" over the weekend with some designer chemicals at a party
B) Is being extorted
C) Is working an inside "dump and pump" trade or
D) Thinks he needs to throw out an overly negative fluff piece to preserve perceptions of his "objectivity" as a professional equities analyst.

I suspect D) is the answer, but even if this is his intent, I don't think he has done himself any favors with this piece. Calling Tesla a "niche player"? Really? At this point, after your 50-page essay on how if only Tesla could build a GigaFactory, they could change the world on a massive scale, suddenly has reverted to "niche player?"

It smells odd, and I don't believe that Mr. Jonas even believes much of what he published today.

I'm going to take this opportunity to accumulate shares in the greatest company of the next few decades. I would of course caution everyone to be careful and not do what I do without your own due diligence and research.

I do not have a complete note, but reading the streetinsider.com digest, I had the same feelings - the note is weirdly odd...

The events of the last week seem to suggest that somebody really did not want for stock to go above 300 at this point...

First Phil Lebeau of MSNBC asking the question which Elon answered several times before in very predictable way (i.e. stock is high but company value will exceed it long term), at a GF event when focus should have been on GF, and then immediately tweeting only the first part of the answer: stock is high. It is almost like he knew what the answer would be, so he went ahead and asked the question, and then tweeted the excerpt with predictable results...

If I remember correctly the GF convertible bonds can be converted to stock at $300 level. Tesla had privately hedged this conversion in a way that dilution will not happen until stock is at $500 or above. Could it be that somebody (the other party in hedging transaction) was set to loose a lot of money if stock rruns above $300 so soon? I do not know the answer, and do not know enough about the hedging arrangement, but have a gut feeling that this could be related...

Any opinions on this wild conspiracy theory would be appreciated...

 

[FluxCap]

Well, AJ is loosing credibility fast with these kind of research notes. He's contradicting himself in so many ways. You believe something, set a target of $320, then you stand for it, regardless of pressure from the rest of the automotive sector.

Don't you find it odd that he comes out with this negative note (basically saying the stock price is too high for the short term) but not adjust his 1y price target? That means, officially, Morgan Stanley still believes that TSLA should be at $320 in Jan 2015.

And don't forget, the $320 target was set based on a computer model that had ridiculously low targets for deliveries of all Tesla cars all the way up till 2020. Since then, many indications from Elon & Co. that deliveries are expected to be so much higher.

Indeed, he is contradicting with fluff only -- nothing he said in the piece adjusts their model on a fundamentals basis.

I have been wrong before, but I am anticipating a rebound starting tomorrow, and continuing when a few other analysts release reports. $285 is my *minimum* fair value going into next year. We are now $30 under that.

 

[hobbes]

Quick, someone in Germany take me out for dinner. Stick will rise because I'll be in a good mood.

Where are you in Germany?! Just bought back some shares I dumped Friday, so it would be o.k. to stop the drop like... now!

 

[dmunjal]

Are they creating space for Alibaba IPO or missing the story for downturn?

This. It may all be about money flows.

 

[TD1]

Gentlemen, it has been a privilege playing with you tonight

 

[eepic]

You're technically correct, but the phrase "naked put," in context, always refers to being short a put. People don't talk about "naked long puts" (or calls), because your risk on a long option is always limited to the premium you paid for the option, regardless of whether you hold the underlying.

A broker could ask "are you buying a naked put or protective put?", and is a useful adjective in that context that's referring to a naked long put. Again, naked just refers to whether you hold the corresponding position in the underlying and not whether it limits risk in certain ways.

 

[Curt Renz]

Earlier this year Adam Jonas of Morgan Stanley raised the Tesla Motors price target to $320 and reiterated an Overweight rating, while calling it, “…arguably the most important car company in the world.” Last week he downgraded Ford from Overweight to Underweight and reiterated an Underweight rating on GM. He cut his price targets for both of them to beneath that day’s price, while at the same time saying he sees “Tesla Motors as the only US auto manufacturer stock offering any upside to fair value.”

The only significant thing I see changed during the last seven days is that the Nevada government quickly provided full support for the battery Gigafactory.

So what was behind Jonas' development of the thesis he published today? Something doesn't seem right. It was odd the way he hedged his opinion by still praising Tesla, while adding some bizarre new criticism. Jonas' nonsensical commentary seen today leads one to consider the possibilities that he is bowing to pressure from superiors or the auto industry he covers.

 

[eepic]

Earlier this year Adam Jonas of Morgan Stanley raised the Tesla Motors price target to $320 and called it, “…arguably the most important car company in the world.” Last week he downgraded Ford from Overweight to Underweight and reiterated an Underweight rating on GM. He cut his price targets for both of them to beneath that day’s price, while at the same time saying he sees “Tesla Motors as the only US auto manufacturer stock offering any upside to fair value.”

The only significant thing I see changed during the last seven days is that the Nevada government quickly provided full support for the battery Gigafactory.

So what was behind Jonas' development of the thesis he published today? Something doesn't seem right. It was odd the way he hedged his opinion by still praising Tesla, while adding some bizarre new criticism. Jonas' nonsensical commentary seen today leads one to consider the possibilities that he is bowing to pressure from superiors or the auto industry he covers.

+1 on this. It's weird because nothing has fundamentally changed to justify a negative turn on his previous analysis, and in fact a few positive milestones towards executing to big plans have been reached. I find myself puzzled by AJ here.