Welcome to Tesla Motors Club
Discuss Tesla's Model S, Model 3, Model X, Model Y, Cybertruck, Roadster and More.
Register

Tesla call options

moonfresh

Member
Jun 26, 2018
121
85
Palmdale
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.
 

rkruff

Member
Aug 9, 2012
25
8
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.
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.
 

moonfresh

Member
Jun 26, 2018
121
85
Palmdale
Probably a good idea to ask your
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.

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.
 

RTPGiants

Member
Dec 18, 2017
58
46
Durham, NC
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.

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.
 
  • Like
Reactions: moonfresh

Marsnaut

Member
Apr 7, 2016
311
282
NYC
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.
 
  • Like
Reactions: moonfresh

moonfresh

Member
Jun 26, 2018
121
85
Palmdale
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.
 

Attachments

  • Screenshot_20180809-180700_Gmail.jpg
    Screenshot_20180809-180700_Gmail.jpg
    138.7 KB · Views: 25

ggr

Expert in Dunning-Kruger Effect!
Supporting Member
Mar 24, 2011
7,032
28,454
San Diego, CA
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.
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.
 
  • Like
Reactions: moonfresh

Carlo Ombello

New Member
Aug 11, 2018
2
2
London
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
 
  • Like
Reactions: moonfresh

moonfresh

Member
Jun 26, 2018
121
85
Palmdale
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

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

Carlo Ombello

New Member
Aug 11, 2018
2
2
London
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
 
  • Like
Reactions: moonfresh

Products we're discussing on TMC...

About Us

Formed in 2006, Tesla Motors Club (TMC) was the first independent online Tesla community. Today it remains the largest and most dynamic community of Tesla enthusiasts. Learn more.

Do you value your experience at TMC? Consider becoming a Supporting Member of Tesla Motors Club. As a thank you for your contribution, you'll get nearly no ads in the Community and Groups sections. Additional perks are available depending on the level of contribution. Please visit the Account Upgrades page for more details.


SUPPORT TMC
Top