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Tesla call options

Discussion in 'Tesla, Inc.' started by moonfresh, Aug 7, 2018.

  1. moonfresh

    moonfresh Member

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    Hey, can someone explain to me what will happen to my call options if Tesla goes private? I am a noob with trading, just a Robinhood investor. I have one in the green with a price target of $355. I have 2 more options with a price target of $540/560. They all expire next summer. The first one went up in value, not as much as I thought--got it when stock was $330. The other 2 lost value. WTH? I had the simple understanding that if the stock goes up, so does the value of the stock options. Thanks for helping.
     
  2. SMAlset

    SMAlset Active Member

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    Probably a good idea to ask your broker.
     
  3. rkruff

    rkruff Member

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    TSLA, if the deal happens will never go above $420 as a publicly traded stock. Call options above that price will be worthless. Value now relates to the probability the deal does not happen.
     
  4. moonfresh

    moonfresh Member

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    Thanks mannnn...I kind of thought something like that. My big bet was on the $355 target. I really didn't want to lose that one. Now I wonder how to exercise something like that if Tesla goes private. I will definitely exercise it if they let me. But it doesn't expire till next summer. I'll ask Robinhood, and I'll report it. There's got to be a lot of people in this situation.
     
  5. RTPGiants

    RTPGiants Member

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    While this is a generalization, I'd expect all in the money options to be sold at par value at the time of acquisition. Assuming a $420 price, then your $355 options would be worth $65.
     
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  6. moonfresh

    moonfresh Member

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    I'll take that...way better than losing.
     
  7. Marsnaut

    Marsnaut Member

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    There are two values to consider: intrinsic value and extrinsic value. If the stock is at $420 and you have a call for $400, the intrinsic value is $20. The extrinsic value relates to things like theta/time decay. If the stock isn't worth anything above $420, then you'll likely have decreased theta on your call, reducing the value of your option.
     
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  8. moonfresh

    moonfresh Member

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    I got this from my broker, Robinhood. Basically, we have to wait for instructions from the big wigs. If I am in the money, wouldn't it be wise to exercise the option? Wouldn't I make more money? Thanks.
     

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  9. ggr

    ggr Roadster R80 537, SigS P85 29, M3P 80k

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    Exercising is almost always the wrong way to go about it. Do the numbers. You could sell the option, getting both the intrinsic value and the time value now, and then use that profit and the money you were going to use to exercise the option to buy stock on the open market. You end up with more shares. Pretty much the only reason to exercise is to lock in a low cost basis and avoid tax, which shouldn't be much of an issue.
     
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  10. Carlo Ombello

    Carlo Ombello New Member

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    Hi all,

    I beg to differ. If Musk's plan goes ahead, $420 would be the floor, not the ceiling, before shares are taken off the trading. It is the minimum exit value for shareholders, which will be paid cash by Tesla's funders to those who want out without going private. If deal is confirmed, the stock will align to $420 straight away after announcement. On the day of the go-private deal, all outstanding shares would have to be de-listed, hence the 35 million additional shorted (borrowed) shares currently floating would need to be given back, which short sellers would need to find in a then illiquid market. This could drive $TSLA in the 000s for a few hours / days. Short squeeze engineering by Elon Musk. I think that's exactly what he's planned, but I may well be wrong.

    So, while it is true that out-of-the-money calls are now low in value, that's because the market does not believe what's happening, and also many misunderstand and think that really $420 is a ceiling (I actually did so too when I read Musk on Tuesday, then realised the masterpiece plan). In summary, cheap call options could be worth a ton of money on a short-squeeze day, ahead of de-listing.

    Hope this helps. You can find my article on this subject on my blog, but also on Cleantechnica and InsideEVs. I won't provide links in case that's bad etiquette!

    Cheers
     
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  11. moonfresh

    moonfresh Member

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    Interesting...I think I will pickup a few cheap calls in hopes of a short squeeze. Thanks.
     
  12. Carlo Ombello

    Carlo Ombello New Member

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    TSLA call options are currently a lot cheaper than symmetrically out-out-the-money puts (the market seems to take for granted that TSLA will tank). Some calls you can literally buy with pocket money, so it's like buying a lottery ticket. IF Musk delivers, then timing is of the essence to re-sell the calls at a much (much!) higher value. If nothing happens, you will have spent few dollars to enjoy the show. :)

    Dr Evil.jpeg
     
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