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

[Fact Checking]

The 649 billion does include health and global warming externalities. That's why it's 649 billion instead of 4.6 or 27.4 billion.

Pump taxes alone generate close to 100b/year in the US, so it's idiotic to talk of financial subsidies for oil. Percentage depletion and whatever are not even rounding errors compared to all the taxes (pump, severance, income, etc.). The environmental issue is the only issue. Unfortunately there is no accepted dollar figure for externalities. And you'll never win an argument by quoting the IMF's ~$100/ton because your opponent will simply quote a much lower price (or $0) from a different source. Endless arguing, zero convincing.

Elon has it right. Transition requires green solutions that are better in some ways, more or less equal in the rest for roughly the same price. Going on about "fossil subsidies" does more harm than good.

Even the IMF study does not include all externalities of global warming, nor is it covering all the subsidies:

• In 50 years there's a fair chance that half of Florida will be under 5 feet of water, and no seawall will protect from that. That alone is ~1 trillion dollars of real-estate value lost alone. (Potentially litigated up to ~3 trillion dollars if we take punitive damages due to Exxon destroying evidence such as deleting the "Wayne Tracker" emails, a secret email alias used by totally innocent Exon CEO Rex Tillerson to discuss global warming related topics with employees.) In Florida alone.
• The U.S. oil/gas extraction industry is being subsidized by federal mineral rights being squandered: most of the reserves are federally owned and extraction rights are given out dirt cheap without maintaining common-sense ownership rights in the extracted resources. There's still ~100 trillion dollars of mineral resources in federal ownership. It's as if Saudi Arabia, instead of extracting all oil via Aramco, sold the oil fields to private citizens cheaply, giving away much of the future cash income stream. It's a direct subsidy to the oil industry.

Agreed about the pointless arguing aspect - there's very little rational discourse possible when the goal of one side is to make an emotional/political argument.

 

[RobStark]

Tesla to launch operations in Israel

Tesla is putting out ads for an Operations Manager in Israel.

 

[Fact Checking]

There's a brutal number of TSLA options expiring this Friday, with a lot of them centered around $250 - I.e. big losses to realize and big gains to protect. Half a million contracts open interest - that's 50 million TSLA shares equivalent ... If most market makers are delta neutral already then this might not mean much. If this week is mostly flat or TSLA gains then this will be a powerful counterfactual to the MM driven "max pain" thesis.

A bit more info about the TSLA options expiring this week, here's how the open interest is distributed among the various strike prices:

2019/Nov/08: [TSLA]
 PUT $010:    754                     ,   CALL $010:      0               
 PUT $020:  1,240                     ,   CALL $020:      0               
 PUT $030:    785                     ,   CALL $030:      0               
 PUT $040:  5,723 ##                  ,   CALL $040:     31               
 PUT $050: 83,643 ###################+,   CALL $050:    134               
 PUT $060:  2,113                     ,   CALL $060:      6               
 PUT $070:  2,651 #                   ,   CALL $070:      0               
 PUT $080:  4,058 #                   ,   CALL $080:      0               
 PUT $090:  2,378                     ,   CALL $090:      1               
 PUT $100: 12,822 ####                ,   CALL $100:      5               
 PUT $110:  2,696 #                   ,   CALL $110:      5               
 PUT $120:  1,250                     ,   CALL $120:      5               
 PUT $130:  8,175 ##                  ,   CALL $130:      1               
 PUT $140:  1,608                     ,   CALL $140:     32               
 PUT $150: 10,530 ###                 ,   CALL $150:     19               
 PUT $160:  3,923 #                   ,   CALL $160:     33               
 PUT $170:  2,744 #                   ,   CALL $170:     37               
 PUT $180:  7,658 ##                  ,   CALL $180:     39               
 PUT $190:  9,223 ###                 ,   CALL $190:    534               
 PUT $200: 19,036 ######              ,   CALL $200:    309               
 PUT $210: 13,851 ####                ,   CALL $210:    747               
 PUT $220: 27,574 #########           ,   CALL $220:  5,708 ##           
 PUT $230: 15,032 #####               ,   CALL $230: 14,749 #####         
 PUT $240: 32,756 ###########         ,   CALL $240:  5,137 #             
 PUT $250: 14,869 #####               ,   CALL $250: 12,188 ####         
 PUT $260: 10,278 ###                 ,   CALL $260: 10,455 ###           
 PUT $270:  4,146 #                   ,   CALL $270:  5,511 ##           
 PUT $280:  7,660 ##                  ,   CALL $280: 12,950 ####         
 PUT $290:  7,427 ##                  ,   CALL $290:  2,828 #             
 PUT $300: 12,905 ####                ,   CALL $300:  5,577 ##           
 PUT $310:  9,657 ###                 ,   CALL $310:  8,215 ##           
 PUT $320:  9,327 ###                 ,   CALL $320:  7,654 ##           
 PUT $330: 11,869 ####                ,   CALL $330: 13,806 ####         
 PUT $340:  7,440 ##                  ,   CALL $340: 11,955 ####         
 PUT $350:    989                     ,   CALL $350: 11,051 ###           
 PUT $360:    424                     ,   CALL $360:  6,548 ##           
 PUT $370:     93                     ,   CALL $370:  2,861 #             
 PUT $380:     28                     ,   CALL $380:  3,201 #             
 PUT $390:      4                     ,   CALL $390:  1,689               
 PUT $400:    147                     ,   CALL $400:  3,575 #             
 PUT $410:      2                     ,   CALL $410:  1,085               
 PUT $420:      0                     ,   CALL $420:  2,568 #             
 PUT $430:      0                     ,   CALL $430:  1,160               
 PUT $440:      0                     ,   CALL $440:  1,904               
 PUT $450:      0                     ,   CALL $450:    606               
 PUT $460:      0                     ,   CALL $460:    190               
 PUT $470:      6                     ,   CALL $470:    920               
 PUT $480:      4                     ,   CALL $480:    768               
 PUT $490:      0                     ,   CALL $490:    281               
 PUT $500:      5                     ,   CALL $500:    986               
2019/Nov/15:  PUTs:   369,503 ; CALLs:   158,064

Observations:

• 527k options, dominated by puts. Huge open interest.
• In that distribution plot we can see that during much of 2019 pricing expectations at around $240 were established, plus shorts bought a hundred thousand contracts of $50-ish "bankwuptcy puts".
• Then Q3 happened, and the consensus shifted up to the current $330-$340. Most of the $240-ish PUTs became worthless and weren't rolled over. (There was no value to roll over.)
• Interestingly there's still almost 100k deep in the money calls not rolled over last week - I suspect they'll be rolled over this week. These options carry almost 1 billion dollars of unrealized profits for Tesla investors who got Q3 right.

Note how different the structure of open interest at other expiries is:

2019/Nov/15:  PUTs:   369,503 ; CALLs:   158,064
2019/Nov/22:  PUTs:    21,436 ; CALLs:    28,097
2019/Nov/29:  PUTs:    12,950 ; CALLs:    15,593
2019/Dec/06:  PUTs:     5,065 ; CALLs:     7,770
2019/Dec/13:  PUTs:     2,272 ; CALLs:     1,075
2019/Dec/20:  PUTs:   132,467 ; CALLs:    94,608
2019/Dec/27:  PUTs:       767 ; CALLs:       875
2020/Jan/17:  PUTs:   486,044 ; CALLs:   169,329
2020/Mar/20:  PUTs:    63,367 ; CALLs:    26,995
2020/Jun/19:  PUTs:   128,248 ; CALLs:    34,906
2020/Sep/18:  PUTs:     7,092 ; CALLs:     3,022
2021/Jan/15:  PUTs:   133,375 ; CALLs:    89,110
2021/Mar/19:  PUTs:     2,955 ; CALLs:       681
2021/Jun/18:  PUTs:    17,545 ; CALLs:    15,132
2021/Sep/17:  PUTs:       625 ; CALLs:     1,344
2022/Jan/21:  PUTs:    13,166 ; CALLs:     8,002
      total:  PUTs: 1,471,310 ; CALLs:   686,060

Later expiries, such as December 20, are much more evenly distributed: 132k puts and 94k calls. Shorter, freshly opened weekly expiries are dominated by calls, such as Nov/22 which is 21k puts, 28k calls.

Gonna be an interesting week.

 

[RobStark]

As of now TSLA is up YoY.

 

[Tslynk67]

Gonna be an interesting week.

Max pain currently $280, good luck with that, MM's! $380 seems more likely to me...

 

[Fact Checking]

Max pain currently $280, good luck with that, MM's! $380 seems more likely to me...

Yeah, so if most MM's delta-hedge long-held options and keep unhedged at most short term options, then the max-pain calculation of $280 is basically meaningless, and the real "max pain" for this week is in the $330-$340 range - as can be seen in the data I posted.

BTW., another event for this week that I forgot to list: later today the NASDAQ is going to release the latest (11 days delayed) TSLA short interest figures.

This will give us short positions on October 31, i.e. the immediate aftermath of the Q3 gap up. On that day the closing price was $314, on some renewed shorting from the $340 interim top.

I'm curious whether short interest dropped below 30 million shares, from 37 million shares shorted on October 15. The peak short interest in the summer was 44 million shares. The bottom in short interest was 24 million shares, early this year.

 

[stef]

‘This Is Unbelievable’: A Hedge Fund Star Dims, and Investors Flee

An old-ish article (2018)... looks like the poor Unicorn hasn’t learned much since...

 

[Tslynk67]

Nasdaq futures are down 0.43%, $TSLA now up in pre-market.

Come on Tesla, where's that GF3 announcement???

 

[MFranc123]

@Fact Checking can I ask where you learned so much about options? I'm thinking of buying the Sheldon Natenberg book. How does it look to you?

 

[Dan Detweiler]

Is it just me or do I find myself dumber and dumber the longer I read posts in this forum? Puts, calls, options, charts, deltas, max pain, bulls, bears, etc. etc.

I just bought the stock and hope I make some money to lower the cost of my Model Y purchase. Is that a bad thing? You guys and gals are WAY smarter than me! I fell like I am just along for the ride. LOL!

Dan

 

[Fact Checking]

Interestingly there's still almost 100k deep in the money calls not rolled over last week - I suspect they'll be rolled over this week. These options carry almost 1 billion dollars of unrealized profits for Tesla investors who got Q3 right.

BTW., a possibility here would be for a big investor to use such call options to buy a bigger stake in Tesla, by exercising those (cash covered) call options this week or letting them expire in the money. The market maker would assign them the shares.

The upside would be that what initially looks like a simple leveraged bet on earnings can be turned into a couple of million shares worth Tesla stake, without having driven up the price through buying/accumulation. Another advantage is that if they have an intention to buy a stake, they could do so speculatively with out of the money options, waiting for a catalyst, for a comparatively low per share cost and an immediate upside to their position. This can be repeated multiple times if a strong catalyst is expected but the timing is uncertain - and there's no downside risk other than paying time value while they are in the waiting phase.

Does anyone know whether that's a favorite strategy for hedge funds or other big investors to enter big positions?

 

[ev-enthusiast]

A bit more info about the TSLA options expiring this week, here's how the open interest is distributed among the various strike prices:
[...]
Observations:

• 527k options, dominated by puts. Huge open interest.

[...]

This is more than double the number of puts compared to calls!
In case of a big overhang of puts compared to calls, could it be in the interest of the option writers to bid up the SP temporarily in order to not have to pay for the puts?
Is historic data about put / call ratios during the rolling short squeeze during 2013 available somewhere?

 

[flabellina]

According to Morten on twitter
Morten Grove on Twitter

Looks like Elon is headed for Europe. At least his jet is.

 

[MFranc123]

without having driven up the price through buying/accumulation

I think this is incorrect. If you buy a $10 call on a $300 stock, that's virtually identical to buying 100 shares. The position will have virtually 0 extrinsic value. The market maker doesn't have to worry about hedging the other greeks with something this deep ITM, but will certainly delta hedge by immediately buying 100 shares.

If you bought $100M worth of $10 calls, you'd basically be buying (through the market maker) $100M worth of Tesla.

 

[ReflexFunds]

I think this is incorrect. If you buy a $10 call on a $300 stock, that's virtually identical to buying 100 shares. The position will have virtually 0 extrinsic value. The market maker doesn't have to worry about hedging the other greeks with something this deep ITM, but will certainly delta hedge by immediately buying 100 shares.

If you bought $100M worth of $10 calls, you'd basically be buying (through the market maker) $100M worth of Tesla.

Delta is less than 1 so a market maker needs to buy less than $100m shares to delta hedge their short call option. It may also be partially hedged with other options rather than stock.
Plus some hedge funds are selling unhedged calls.

 

[Fact Checking]

This is more than double the number of puts compared to calls!
In case of a big overhang of puts compared to calls, could it be in the interest of the option writers to bid up the SP temporarily in order to not have to pay for the puts?
Is historic data about put / call ratios during the rolling short squeeze during 2013 available somewhere?

If you look at the per price level open interest data I posted (rounded to $10 for easier visualization), then you'll see that the vast majority of open PUT options are below $340. I believe down to $300 or so the put/call ratio is almost 1:1 on a same-strike-price basis, so there's no near term interest for MM's to manipulate the price in the $300-$340 range - it's a zero-sum game.

For any MM's that are not delta neutral for those ~100k options at around $230-$280 there's an interest in driving down the price - but I think most are delta neutral, i.e. they don't really care.

 

[MFranc123]

Delta will be less than 1 so a market maker needs to buy less than $100m shares to delta hedge their short call option. It may also be partially hedged with other options rather than stock.
Plus some hedge funds are selling unhedged calls.

For the Nov 15 calls, my broker (interactive brokers) calculates delta as 1.000 for everything below $240. It's surely rounded, but I bet there are a lot of 9s in the unrounded number.

If we go out to March, $60 and below have a delta of 0.999 and $30 and below have a delta of 1.000.

 

[Fact Checking]

Delta is less than 1 so a market maker needs to buy less than $100m shares to delta hedge their short call option. It may also be partially hedged with other options rather than stock.
Plus some hedge funds are selling unhedged calls.

Also, the scenario I am thinking of is if a hedge fund with accumulation interest was buying $250-ish Nov/15 calls back in the summer. These options were trading below $10 during the summer, and even shortly before Q3 they were trading at around $19.

I.e. if someone with an intention to build a big stake could have invested about $10-$20 per share to guarantee a big position at $250, with a downside of only the $10-$20 premium.

Doing this while TSLA was between $180-$220 could have allowed this without there being any delta hedging buying pressure on the underlying.

I.e. in such a scenario call options would have allowed them to guarantee a big stake "conditionally", under the disguise of a leveraged options play, with a limited downside risk and unlimited upside, and they'd have a nice stake in Tesla at the end with an immediate $50+ win on the position.

Far less risky strategy to gain a big stake in Tesla than say catching the falling knife at $178 ...

 

[Fact Checking]

This might be one of the catalysts behind today's pre-market optimism:

"Jefferies analyst Philippe Houchois raised the price target on Tesla (NASDAQ: TSLA) to $400 (from $300) while maintaining a Buy rating."​

 

[ReflexFunds]

For the Nov 15 calls, my broker (interactive brokers) calculates delta as 1.000 for everything below $240. It's surely rounded, but I bet there are a lot of 9s in the unrounded number.

If we go out to March, $60 and below have a delta of 0.999 and $30 and below have a delta of 1.000.

True, but presumably the options were bought when still out of the money when delta was lower. As price moves higher market makers will have to scale up their hedge.

The sheer number of open call options shows they are not all hedged 1-1 with stock though.
It looks like open call options corresponding to c.70 million shares. There are only 179 million shares outstanding (plus an additional c.35 million virtual/duplicated shares sold by shorts) and most are held by long term investors.

I do think the majority of share volume every day is likely option related. Expect this is just the same shares changing hands multiple times though while most shares are held long term.