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Shorting ICE

Discussion in 'TSLA Investor Discussions' started by jhm, May 18, 2017.

  1. jhm

    jhm Well-Known Member

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    Some traditional automakers will not survive the transition to EVs.

    What ICE makers will fail?
    When do they become short targets?
     
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  2. GoTslaGo

    GoTslaGo Learning Member

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    I'm guessing the German companies will be ok. They all seem to have acknowledge the EV future. Riskiest will be BMW. Also I suspect they will get bailed out if the situation gets that bad.
     
  3. rdalcanto

    rdalcanto Member

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    I have thought about shorting companies like GM that I don't think will survive the transition to EVs (which will happen sooner than they think). But I decided I can make more money just buying more TSLA shares and LEAPS.
     
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  4. Jonathan Hewitt

    Jonathan Hewitt Active Member

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    #4 Jonathan Hewitt, May 18, 2017
    Last edited: May 18, 2017
    Not sure if this is the point of the thread, but there are several ways to "short" the ICE makers once you decide you want to. I personally never straight up short stock as the odds are against you.

    1. Straight up short the stock. Highest risk, highest reward. I don't think this needs explaining? This is not something I like doing.
    2. Covered put. This is like the covered call strategy, but in reverse. You short the stock but sell a put against it. Just like how a covered call gives you extra income against long stock, the short put will generate income against your short stock. In exchange, just like how a covered call limits your upside potential, a covered put will limit your profit to the downside. This method is slightly less risky than #1 but also less potential reward. I like this a lot better than #1 because you could start this strategy right now and potentially make money even if the stock you are shorting goes up a little. It actually works really well because people pay a lot of money for puts for protection or because they don't want to straight up short the stock and I'm more than happy to sell them those puts.
    3. Long puts. Just like many on TMC are long calls on TSLA, you could go long LEAP puts. The problems here are the same as going long LEAP calls on TSLA. You have to be right on timing and direction as time decay is not your friend and you also may not be able to buy LEAPS far enough out in time. I don't really like this strategy but if we think the writing is on the wall for certain ICE companies and we don't think the market has realized it yet I may consider it.
    4. Short naked calls. This strategy is similar to #1. You have infinite risk to the upside just like #1 but because you are selling premium and because you are selling a strike higher than the stocks current price (usually) your breakeven on the upside is higher than straight up shorting stock. In exchange for this higher breakeven the only money you can make is the premium collected. Unlike #1 though, your broker will probably let you short more naked calls than they would let you short stock AKA you can leverage much higher here (BUT DON'T DO THAT!!!). Any trade using undefined risk should be only a few percent of your total portfolio. That way when things go wrong (which they will at some point!) you don't lose your account. One thing you can do for #4 or #1 is to buy a way out of the money call. This will cost you some $$ but establishes an upper limit to your losses and may provide you some margin relief. This strategy has a high percent chance of success because the stock has to move up to the strike price + premium before you start losing money but you don't make much, especially if IV is really low.
    5. Put spreads/call spreads. You can buy one put ITM (low extrinsic value) and sell one OTM (ALL time value). This trade should have around a 50% chance of success or even higher, depending on strike selection and if you close it out at 50% max profit instead of holding until expiration. You can also sell an ITM call and buy an OTM call and it's the same exact thing. If you don't believe me go ahead and set up both spreads and calculate max profit on each! The only difference is the put spread will be a debit to open and credit to close and the call spread will be a credit to open and a debit to close. Just like #2, you could do #5 right now. You don't have to be right on direction to make money.
    6. Put calendar spreads. You can short a near term put and go long a farther out put. I like this strategy as the short term put effectively pays for part of the farther out put but if the stock goes down too fast and too far you will lose whatever you paid for the spread. The cool thing is you can pick the strike based on how far you think the stock will trade down. Another cool thing is if the stock gets some downward momentum the IV picks up, which is cool because an IV increase will increase your longer term put's value more than the near term put's value =more profit. I like this trade as an addition to my other trades but you can't do very many because there is a decent chance you won't win on this trade.

    Another thing to mention is if you are short stock is you are required to pay the dividend. Technically the stock should lower in value equal to the amount of the dividend but it makes tax time less fun. Another fun surprise is when you are short ITM calls when dividend time is approaching and the call holder exercises their long call and you wake up short stock just in time for ex-div date. It's too late to cover at this point, you are already on the hook for paying the dividend. The key here is to roll out your short calls enough in time such that there is a decent amount more extrinsic value than than the dividend. If someone exercises their call when there is a lot of extrinsic value left you actually come out ahead paying their dividend, which is why I've never seen that happen. I have had short calls assigned to me many times before, however, because the dividend was worth more than the extrinsic value.

    Last thing to consider is the interest rate you have to pay when you are short stock. This could add up over time if you are taking option #1 but if you go option #2 the short puts will more than pay for the interest.

    You can try any or all of these strategies together to achieve your trading goals. I'm not giving anyone advice but if I were I would tell you that whatever you do keep it small. Make sure you understand worst case scenario and make sure that you can live with that worst case scenario. I was doing option #4 (with protective OTM call) and #5 on MBLY this year and last year and I was doing really well just collecting the premium. Then the worst case happened; they got bought out by INTC at a value much higher than they were trading at. I had made sure it was a very small trade so it didn't really affect my account too much. In more direct terms, you may think a certain ICE company is going bankrupt but maybe they get bought out by someone else or they cure cancer or something (instead of causing cancer, ROFL) so you have to be prepared for the repercussions of these scenarios. No one on here should try to star in "The Big Short 2" in shorting ICE companies, it's not worth it.
     
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  5. McRat

    McRat Active Member

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    GM has been flat for 4 years, pays dividends, just signed with Waymo, Waymo had positive ruling against Uber which is likely to turn criminal.

    I'd say go for it. Hit on 20 when you've seen 3 aces played.
     
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  6. Dynastar

    Dynastar Member

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    I would be interested in an ICE-related discussion too. At least some of the car makers are going to survive, and it's a little hard at this point to pick the losers with certainty. On the other hand I don't think there are going to be any winning gas stations. Even if a chain transitions to being convenience stores it will take a big hit. Another angle might be the ICE repair network. EVs need less maintenance, and autonomous driving will also bring some of the remaining work "in house". How will the NAPAs and Autozones of the world deal with that? Dealerships make a lot of their money on service as well, even if their brands make the EV transition won't the dealerships lose a lot of revenue from a decrease in service?

    Will anyone ever go to Jifffy Lube when oil changes disappear?
     
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  7. LargeHamCollider

    LargeHamCollider Battery cells != scalable

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    My first target would be Toyota, I don't think they'll go BK but their *insane* focus on H2 cars is going to result in a substantial loss of market cap.

    But I'm not actually going to do it, would rather put it long TSLA.
     
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  8. pz1975

    pz1975 Member

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    I have a small position in 2019 GM puts. About 20% green so far.
     
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  9. McRat

    McRat Active Member

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    Target platinum futures. Platinum is used in emissions controls. However, it is not as effective against NOx emissions as palladium.
    As MPG targets get higher, high combustion temp turbo engines become more common, and EV technology increases, the demand for platinum will continue to falter as rhodium and palladium must replace platinum.
     
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  10. SwTslaGrl

    SwTslaGrl Member

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    For broader investments I make a small tilt to countries with a clear goal to increase EV:s and reduce ICE:s, China and India market funds right now. I guess it's more symbolic though.
     
  11. Oil4AsphaultOnly

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    I think Toyota's too stable for a short-term short. And the fact that China has implemented CARB-style ZEV credits, Toyota will have to sell PHEV's and BEV's in the long-term.

    Rather, I think Ford would make a better short. Mark Fields is demonstrating very poor leadership (serious lack of EV development being just one clue) and he's being called on it by the board. All that hard work that Mulally put in to elevate F's market cap is now going to drain.
     
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  12. PaulRocket

    PaulRocket Member

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    What about Fiat/Chrysler? I think next year or so might be a good time to start a small short position in one of these old established ICE automakers, the trick is to find out which company is the most exposed to this change.
     
  13. jhm

    jhm Well-Known Member

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    2017 Investor Roundtable:General Discussion

    In this post, I come around to a nice way to rank automakers for how well positioned they are for the EV disruption. Simply rank them based on EVs as a percent of total vehicle sales. This could be on a unit sale or revenue basis. Either way, if you are selling disproportionately more EVs today than the market as a whole, you are in a position to gain market share as the EV market grows.

    Those on the bottom of the list will find it increasing harder to catch up in the future. So they are on a path to lose market share.

    If anyone cares to pull this data together, that would be much appreciated. Thanks!
     
  14. winfield100

    winfield100 Active Member

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    could you simply use insideEV's data?
    i put that in a spreadsheet
    Monthly Plug-In Sales Scorecard

    trying to get battery size for each or avg battery size for Tesla X and S for the "gigawatts/year needed..
     
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  15. jhm

    jhm Well-Known Member

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    Yeah, that gives us the numerator in unit. The other piece we need is the total vehicles (EVs and non-EVs) for the denominator.


    I'm glad you mentioned battery size. If we had that, it could provide a similar ratio, kWh per vehicle ( EVs and non-EVs included). This metric naturally gives more weight to EV maker that sell bigger battery vehicles, less weight to PHEVs and HEVs, and no weight to ICEVs. In principle, automakers that are delivering more kWh per vehicle are building out a stronger battery supply chain. Scaling up battery supply will be a major challenge, but some makers are ahead of the curve while others lag.

    So you produce these scorecards? They are very helpful. If you like the ratios I'm proposing, feel free to publish that too. I think they could attract some positive attention in the media. It at least provides more context for the EV sales numbers.
     
  16. Dynastar

    Dynastar Member

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    Interesting. Here's a chart from 2006.

    Fig237_1.jpg
     
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  17. winfield100

    winfield100 Active Member

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    i'm making such a spreadsheet. should I guesstimate Tesla's have avg of 75kW battery?
    (how do you make a spreadsheet shareable? as a computer nerd since 1968, i am woefully ignorant in some such areas)(and non hackable)
     
  18. jhm

    jhm Well-Known Member

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    Hmm, I would think the average is more in the 80 to 90 kWh range, so perhaps 85.

    I've tried Google drive once. I'd like to find something a little easier. Perhaps others have recommendations.
     
  19. winfield100

    winfield100 Active Member

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    tell me how this looks please
    KWH of EV batteries
     
  20. durkie

    durkie Member

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    There's also the possibility of FC getting dragged in to it faster than they originally planned, a la VW: Fiat Chrysler to Modify 100,000 Vehicles After Accusations of Emissions Cheating
     
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