Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[bkp_duke]

Attached documents provide the necessary info on the Nasdaq Opening/Closing Cross.

The essential purpose seems to be that by placing large orders for open or close, one can
(1) access enough liquidity to be executed all at once rather than affecting the market price over the course of the day
(2) adjust your limit price during the preceding several minute window based on the subscription-only Net Order Imbalance Information stream.
(3) benefit from "Imbalance-Only Orders" whose express purpose is to add liquidity (presumably via MMs).

The "Opening and Closing Cross threshold" is 10%, meaning that the Cross is restricted to within 10% of the bid-ask midpoint. However, "the threshold range is dynamic; as the Nasdaq Best Bid and Offer (QBBO) changes, the threshold price range changes." My uneducated interpretation is that the SP can change an unlimited amount up until the QBBO stops changing, then it can only move another 10%.

Therefore, the 12/18 Closing Cross presents an eniticing opportunity for both sides of the trade. As others are saying, front-runners could create a gap up just prior to close upon the initiation of the Net Order Imbalance Information stream at 3:50pm (we saw a similar movement on Friday), by entering LOC orders with a much higher ask. Index funds must then decide whether to 'get it over with' or wait until 12/21.

Did You Know? "Short selling is permitted during the Cross."

So we should all place Limit Sell orders for $2000 or higher.

 

[generalenthu]

Since Tesla shares are in demand couldn’t you have a higher ask price than you normally would when there is high volume?

So let’s say you have half the shares that have not been bought prior to this day and you have a market imbalance of 41,600,000 shares. How is the price going to react if there is not enough share for sale?

Yes. A price will be found. Markets are remarkably good at finding short term equilibrium prices. If anyone has forgotten, oil traded in deeply negative territory earlier this year.

But, it helps to keep in mind that there is also a lot of money looking to front run the inclusion and sell to the index managers. So there will be a lot of supply from anyone who has a balance sheet, including people on this forum.

The billion dollar question (with apologies to the 64,000 $ question which sounds so small) is whether these front runners will have accumulated enough to satisfy the demand from index funds.

Also note that there is a ton of non index money which will also be buying as it will be in the benchmark. That is likely to be spread out over many days before and after as execution and beating the benchmark is important for them.

While no one knows what will happen in the final minutes of Friday 12/18, I at least know I'll be glued to my monitor. Gun to my head, I'd say there is not enough short term money to easily satisfy the index demand. Not advice.

 

[Knightshade]

By 2045 Tesla will probably have transitioned from insane/hyper growth to merely around 10-15% growth a year. That is a good time for dividends.
And those dividends will be so *huge* - and recurring -.

So you think Elon has been lying to everyone when he's repeatedly said Tesla will never offer dividends?

It's weird how often folks insist they're super bullish on Elon but then don't believe what Elon actually says.

 

[MXWing]

So you think Elon has been lying to everyone when he's repeatedly said Tesla will never offer dividends?

It's weird how often folks insist they're super bullish on Elon but then don't believe what Elon actually says.

3 centuries maybe, 6 centuries definitely on the dividends.

 

[TheTalkingMule]

But, it helps to keep in mind that there is also a lot of money looking to front run the inclusion and sell to the index managers. So there will be a lot of supply from anyone who has a balance sheet, including people on this forum.

The billion dollar question (with apologies to the 64,000 $ question which sounds so small) is whether these front runners will have accumulated enough to satisfy the demand from index funds.

That's the question. Who is selling to these accumulators right now? What person or entity was/is interested in selling at $400/$600/whatever, when you know a massive chunk of the float must change hands in late December?

I think there will simply not be nearly enough shares available to front-runners. We can see that illustrated by this 3 week 50% run up on relatively low volume.

 

[Bet TSLA]

So you think Elon has been lying to everyone when he's repeatedly said Tesla will never offer dividends?

It's weird how often folks insist they're super bullish on Elon but then don't believe what Elon actually says.

I think Elon is happy to change his mind when things change. So perhaps things will change in a way that makes dividends make sense. Hard to see what though.

There are a couple of things Elon has said that I don't believe. One is his weird insistence on Tesla being only a few weeks from bankruptcy during the "production hell" phase of the Model 3 ramp. That's always seemed obviously false to me, given how easy it has always been for Tesla to raise money. I think what he might mean is that he would have had to reduce his percentage of Tesla ownership in order to make things work (i.e. sell off a piece), which was unacceptable to him. But that's a far sight from any danger of bankruptcy.

I also don't believe some of the truly stupid things he's said about our current pandemic, e.g. his "close to zero" cases by the end of April prediction. He can't actually believe some of that stuff he's tweeted, because if he does he has some very odd niches of profound stupidity, which I think extremely unlikely. I think he's sometimes just saying dumb stuff to try to influence things.

 

[st_lopes]

There is a 25 years private owned surgical center for sale in Montreal if you are interested in diversification, since it’s a sure thing.
Since total joint replacements will increase 550% by 2030 because of aging and obesity, that might be the closest thing that mimics the growing business of TSLA

If you ever need a silent partner. My only condition is that we name it Tesla Joint Service Centre.

 

[gabeincal]

Just a simple question. Is this a fixed rate, or is it somehow changes every month based on some benchmark rate, like bank overnight borrow rate?

Thanks.

Good question. Never been mentioned during our conversations that it is a variable. I will ask but I’m *assuming* that it is fixed 1.94 irrelevant of amount. I will report back with my findings!

 

[SeaNile]

I'm confused. So we think the stock will go down on Deb 18th??

 

[PeterJA]

For how much an investment has to drop to be stroke by a margin call from the bank?

I don't know about banks. For brokerages, it depends on their margin equity requirement and the size of your loan.

According to @Prunesquallor, E*Trade is now giving him a margin equity requirement of 40% for TSLA. Last time I checked, Interactive Brokers requires 70%.

So let's say you have 1000 shares of TSLA (currently worth $600k) and a margin loan of $60k (10% of the market value). Your equity is 90% of the market value.

If the equity requirement is 40%, you'll get a margin call in your loan exceeds 60% of the market value.
$60k / 0.6 = $100k market value = TSLA price of $100 per share. That's a mighty big drop (83%), but admittedly not as big as AMZN dropped during the dotcom crash (~90%).

If the equity requirement is 70%, you'll get a margin call (or instant selling at IB) if your loan exceeds 30% of the market value.
$60k / 0.3 = $200k market value = TSLA price of $200 per share. That's still a big drop (66%), but TSLA came close to that last spring because of Covid. So I'm waiting until after S&P inclusion and Trump's eviction from the White House before taking advantage of IB's super-low interest rates.

Edit: You can protect yourself some from margin calls with a stop-loss sell order, or by buying out-of-the-money puts. I need to learn about the latter when I get to IB.

 

[steve3]

Yes. A price will be found. Markets are remarkably good at finding short term equilibrium prices. If anyone has forgotten, oil traded in deeply negative territory earlier this year.

But, it helps to keep in mind that there is also a lot of money looking to front run the inclusion and sell to the index managers. So there will be a lot of supply from anyone who has a balance sheet, including people on this forum.

The billion dollar question (with apologies to the 64,000 $ question which sounds so small) is whether these front runners will have accumulated enough to satisfy the demand from index funds.

Also note that there is a ton of non index money which will also be buying as it will be in the benchmark. That is likely to be spread out over many days before and after as execution and beating the benchmark is important for them.

While no one knows what will happen in the final minutes of Friday 12/18, I at least know I'll be glued to my monitor. Gun to my head, I'd say there is not enough short term money to easily satisfy the index demand. Not advice.

Your insights are greatly appreciated. Looks like the 18th may be an especially wild ride during trading hours with so many options expiring that day, with declining delta hedging requirements as calls are sold to close...but still maybe not providing enough supply to satisfy demand.

In a Roth account (no margin available to exercise a bunch of calls)... If one agrees with your view of not enough short term money to satisfy index demand (I assume you’re referring to the auction at close?), does it make sense to hold onto those calls until the last couple of minutes before close?

Would seem nice if I could let them all expire ITM & ask Etrade to immediately exercise them all & sell off only enough shares at this auction price to cover the exercising funding requirements.

edit: Do you have any 12/18 calls? @FrankSG has said he has some, would love to hear any thoughts you & Frank have on them. TIA.

 

[2daMoon]

Rolling over my 401 and have the option to put it in an IRA account which I can mange. I know better but 100k of TSLA is tempting.

That's exactly what I did soon after learning I could. Wishing I had known back when I became eligible.

 

[dc_h]

I think Elon is happy to change his mind when things change. So perhaps things will change in a way that makes dividends make sense. Hard to see what though.

There are a couple of things Elon has said that I don't believe. One is his weird insistence on Tesla being only a few weeks from bankruptcy during the "production hell" phase of the Model 3 ramp. That's always seemed obviously false to me, given how easy it has always been for Tesla to raise money. I think what he might mean is that he would have had to reduce his percentage of Tesla ownership in order to make things work (i.e. sell off a piece), which was unacceptable to him. But that's a far sight from any danger of bankruptcy.

I also don't believe some of the truly stupid things he's said about our current pandemic, e.g. his "close to zero" cases by the end of April prediction. He can't actually believe some of that stuff he's tweeted, because if he does he has some very odd niches of profound stupidity, which I think extremely unlikely. I think he's sometimes just saying dumb stuff to try to influence things.

Bill Gates and Steve Jobs didn’t believe in dividends either and APPL MSFT are among the biggest dividends out there.

 

[Bet TSLA]

I'm confused.

Why should you be any different from anybody else?

So we think the stock will go down on Dec 18th??

Who is this "we" you speak of? If you want an absolutely correct and conclusive answer, just ask the TA guys a few minutes after the close. They'll all tell you it was obvious.

Me, I feel fairly confident that TSLA will be higher after the close on Dec. 18th than it is today.

 

[Carl Raymond]

So you think Elon has been lying to everyone when he's repeatedly said Tesla will never offer dividends?

It's weird how often folks insist they're super bullish on Elon but then don't believe what Elon actually says.

Have you a reference to when Elon said that? It just doesn’t sound like his phrasing. He would say something like “not for the foreseeable future”.

 

[StealthP3D]

Since Tesla shares are in demand couldn’t you have a higher ask price than you normally would when there is high volume?

If the price is high enough it will give speculators more confidence to step in and sell short to the funds the shares they need figuring they can cover later for less. So I don't expect anything too crazy but you never know.

 

[Tim S]

Your insights are greatly appreciated. Looks like the 18th may be an especially wild ride during trading hours with so many options expiring that day, with declining delta hedging requirements as calls are sold to close...but still maybe not providing enough supply to satisfy demand.

In a Roth account (no margin available to exercise a bunch of calls)... If one agrees with your view of not enough short term money to satisfy index demand (I assume you’re referring to the auction at close?), does it make sense to hold onto those calls until the last couple of minutes before close?

Would seem nice if I could let them all expire ITM & ask Etrade to immediately exercise them all & sell off only enough shares at this auction price to cover the exercising funding requirements.

edit: Do you have any 12/18 calls? @FrankSG has said he has some, would love to hear any thoughts you & Frank have on them. TIA.

FYI I have had in-the-money calls exercised in my ETrade Roth IRA without enough cash to pay for them. I got a "cash call". I had to raise the cash after the market opened Monday. I was able to sell just enough shares to cover the negative balance.

 

[StealthP3D]

Fair enough. Different folks have different tolerances for risk. But there's some risk in just getting out of bed, and the risk of a margin call when your margin loan is relatively small is relatively low.

I never mentioned a margin call as the concern!

 

[StealthP3D]

For how much an investment has to drop to be stroke by a margin call from the bank?

That would be completely dependent upon the terms of the loan you have with your bank. In general, banks and brokerages don't like to lose money and they tend to be the ones who write the fine print so they tend to have a lot of discretion when things go haywire and they get nervous. With large loans you might have your lawyers hammer out the details with the bank or brokerage, something I have zero interest in.

 

[StealthP3D]

Cathie Wood thinks inflation will not be a problem for at least the next year or so, "because of the productivity gains from explosive innovation."

I know what CW thinks and I tend to agree with her. That doesn't mean I want to bet we are right. Sometimes the changes that end up happening are not telegraphed in advance. It's very difficult to predict these things. If you can predict interest rates and are willing to place leveraged bets based on your predictions, you can become very wealthy. If you're wrong you can go broke.