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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
- Thread starter AudubonB
- Start date
Surprised nobody got $42 yet.
MartinAustin
Active Member
The overhang is that EM might sell stock. Once that is out of the way, we don't need to think about Twitter... it has nothing to do with Tesla - unless TSLA bears are able to connect the two with fictional FUD.
KBF
Model X owner (formerly Cdn Signature Model S)
It passes the time in between FUD articles and totally off-topic rant posts. And it's cheaper than watching Netflix.
It’s being reported over in the battery thread that Troy Teslike is saying that 4680 production is shut down. Equipment supplier not able to deliver, and Tesla taking over themselves. Sounds similar to the 3 ramp.
The options set up for this week is juicy
Something I've been pondering for the last few days, and hopefully will provide some optimism here going into earnings, is the options setup this week. This weeks expiration is a monthly options expiration, and there is a fairly large amount of open interest. That alone isn't interesting, but where the open interest is *is* interesting.
A feature of the bull market for TSLA from 2019 - 2021 really was heavy call options being bought, causing lots of upside squeezes. And while I don't have a historical record of this, I'd wager earnings weeks would typically have lots of in, or near the money calls being held (expecting a beat) that would get closed after earnings. That overwhelming call buying has faded substantially, and going into this earnings it's very heavily put skewed.
As a very brief refresher, when most anyone buys (or sells, for that matter) an option, they are buying from a dealer/MM/bad guy. The dealer/MM/bad guy generally wants to stay neutral and themselves will buy or sell shares of the underlying stock to hedge appropriately. This amount is effectively represented by the "delta" of the option. The furthest out of the money options have a delta near 0, and once they go in the money (ITM) that delta is 1. So in an example where some loser buys $150 puts, they might have a delta of 0.2, meaning the dealer will short roughly 20 shares (relative to the 100 shares the put contract represents).
The point of all of that is to say, ITM options are basically fully hedged, meaning each ITM put contract carries 100 shorted shares by the dealer with it. (the reverse being true of calls, obviously).
Using open interest from this morning (representing yesterdays data) and yesterdays closing price to match, for options expiring this week there are:
~340k open put contracts ITM (34m shares short)
~66k open call contracts ITM (6.6m shares long)
The general takeaway here is that dealers/MMs/bad guys are net short ~27m shares just by this weeks OpEx. While ~1% of the float may not sound like a lot, in my opinion it is substantial for one week. I know the board likes to suggest that they'll just manipulate it or whatever, what really matters for how this plays out is the behavior of the holders of those puts.
If someone holding a put closes it out, the dealer/MM/bad guy will basically immediately buy back those shares that they shorted to hedge. The only scenario where the net short # of shares stays as is, would be if all those ITM puts basically exercise the position and take out an actual short. Which I doubt, but is possible. Even if someone closes out an in the money put and rolls their position forward they'd likely do it to a lower, out of the money price, which would have a lower delta, meaning less shares short needed to hedge.
What does this all mean?
I think any slight beat is going to send us ripping into early next week. A beat sending the stock up just a little will lead to ITM puts going OTM, lower delta, reducing the shares needed to short to hedge. Some put holders seeing a rising stock price, and their gains slipping away will close out positions, leading to shares sold short being bought back, this should further accelerate a move upwards. Add in some opportunistic degen call buying like the days of old to help juice things further and we've got a squeeze.
But maybe a more important takeaway is I find it hard to see us head materially down from here even if earnings aren't great simply because of this positioning being at least somewhat unwound. And I think this feeling of "we dump after every beat" comes from the opposite of this scenario typically playing out, with traditionally lots of ITM or near the money *calls* being held relative to puts. With holders closing those out after earnings.
Caveats
Lastly @generalenthu I know you often tracked deltas/open interest. Do you have numbers for this expiration? Do you see what I see?
Something I've been pondering for the last few days, and hopefully will provide some optimism here going into earnings, is the options setup this week. This weeks expiration is a monthly options expiration, and there is a fairly large amount of open interest. That alone isn't interesting, but where the open interest is *is* interesting.
A feature of the bull market for TSLA from 2019 - 2021 really was heavy call options being bought, causing lots of upside squeezes. And while I don't have a historical record of this, I'd wager earnings weeks would typically have lots of in, or near the money calls being held (expecting a beat) that would get closed after earnings. That overwhelming call buying has faded substantially, and going into this earnings it's very heavily put skewed.
As a very brief refresher, when most anyone buys (or sells, for that matter) an option, they are buying from a dealer/MM/bad guy. The dealer/MM/bad guy generally wants to stay neutral and themselves will buy or sell shares of the underlying stock to hedge appropriately. This amount is effectively represented by the "delta" of the option. The furthest out of the money options have a delta near 0, and once they go in the money (ITM) that delta is 1. So in an example where some loser buys $150 puts, they might have a delta of 0.2, meaning the dealer will short roughly 20 shares (relative to the 100 shares the put contract represents).
The point of all of that is to say, ITM options are basically fully hedged, meaning each ITM put contract carries 100 shorted shares by the dealer with it. (the reverse being true of calls, obviously).
Using open interest from this morning (representing yesterdays data) and yesterdays closing price to match, for options expiring this week there are:
~340k open put contracts ITM (34m shares short)
~66k open call contracts ITM (6.6m shares long)
The general takeaway here is that dealers/MMs/bad guys are net short ~27m shares just by this weeks OpEx. While ~1% of the float may not sound like a lot, in my opinion it is substantial for one week. I know the board likes to suggest that they'll just manipulate it or whatever, what really matters for how this plays out is the behavior of the holders of those puts.
If someone holding a put closes it out, the dealer/MM/bad guy will basically immediately buy back those shares that they shorted to hedge. The only scenario where the net short # of shares stays as is, would be if all those ITM puts basically exercise the position and take out an actual short. Which I doubt, but is possible. Even if someone closes out an in the money put and rolls their position forward they'd likely do it to a lower, out of the money price, which would have a lower delta, meaning less shares short needed to hedge.
What does this all mean?
I think any slight beat is going to send us ripping into early next week. A beat sending the stock up just a little will lead to ITM puts going OTM, lower delta, reducing the shares needed to short to hedge. Some put holders seeing a rising stock price, and their gains slipping away will close out positions, leading to shares sold short being bought back, this should further accelerate a move upwards. Add in some opportunistic degen call buying like the days of old to help juice things further and we've got a squeeze.
But maybe a more important takeaway is I find it hard to see us head materially down from here even if earnings aren't great simply because of this positioning being at least somewhat unwound. And I think this feeling of "we dump after every beat" comes from the opposite of this scenario typically playing out, with traditionally lots of ITM or near the money *calls* being held relative to puts. With holders closing those out after earnings.
Caveats
- I can make mistakes. I've looked at these numbers and I can't read it any other way, but there is always the chance I messed up some logic.
- I simplified the math by only looking at ITM options. All options, regardless of their strike relative to the current price have some delta, and therefore some amount of shares bought/sold short to hedge, but looking at OTM strikes too doesn't meaningfully change the picture to my eye. (but makes the math way more complicated)
- Open interest changes daily, this was as of this morning, but the picture could look a lot different tomorrow.
Lastly @generalenthu I know you often tracked deltas/open interest. Do you have numbers for this expiration? Do you see what I see?
Knightshade
Well-Known Member
I can think of at least 10 things that might be a battery thread..... got a link?
Edit-found it-- it's a post from Sunday in the battery subforum
Troys twitter thread (well, his couple posts about it) are here:
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Thank goodness....for a while there i thought Tesla was genuinely losing market share 
www.tesmanian.com
Tesla Captured 65% of US EV Market Through 8 Months of 2022, 21% of Premium/Luxury Segment in Q3
Tesla captured 65% of the U.S. EV market in eight months in 2022. The brand also captured 21% of the premium/luxury segment in Q3, leaving its closest competitor BMW in the dust.
www.tesmanian.com
What if a lot of those puts are part of spreads? Meaning that MMs would really only be short on half of those, and long the other half. If we judge by the selling options thread, put spreads vastly outnumber call spreads.
2daMoon
Mostly Harmless
Thank goodness....for a while there i thought Tesla was genuinely losing market share
View attachment 865169
Tesla Captured 65% of US EV Market Through 8 Months of 2022, 21% of Premium/Luxury Segment in Q3
Tesla captured 65% of the U.S. EV market in eight months in 2022. The brand also captured 21% of the premium/luxury segment in Q3, leaving its closest competitor BMW in the dust.
Yeah, well? We'll see how long that lasts...
...the competition is coming!
do I really need to put a /s on this?
This is a totally fair point, and I can't refute it in any way. I'd just say I wouldn't use the options thread as representative of overall behavior. But even if we assumed the net short # of shares was half that, it's still a substantial amount of shares to be bought back over a short period of time imo.
jkirkwood001
Active Member
Very thoughtful and pro-active of you, @Gigapress , thanks!I went ahead and made one so we can have it for this quarter. As long as nobody vandalizes it or accidentally overwrites the numbers then this spreadsheet should work fine.
TeslaMotorsClub Investor Casual Quarterly Estimates Compilation
Q3 '22 TMC Quarterly Estimates - 2022 Q3,. .,Summary Statistics <a href="https://teslamotorsclub.com/tmc/posts/7122581/">Gigapress' post in TMC</a> TMC Username,Revenue,Auto Gross Margin Excl ZEV Creds,GAAP Earnings per Share,Non-GAAP Earnings per Share,Comment,Revenue,Auto Gross Margin Excl ZEV...docs.google.com
I got you...was that GAAP or non-GAAP?
You gotta lock it down prior to announcement though, or bragging rights will mean nothing!
I was thinking the same. Lots of Puts sold because of current fear in the market. As soon as earnings are solid, many Puts will be closed and the MM can rebuy the shares they had sold to hedge, which causes the SP to rise and more Puts to be closed, etc.
Or if those put buyers are just wary that the macro is turning around (or just a bear rally).
If is worth formally debunking one Bear talking point, even though most of us here already understand why it is wrong.
The starting point is to recognise why Tesla margins are currently higher:-
While Tesla doesn't have a lot of revenue from parts and service, they do have growing secondary auto revenues:-
Higher Quality has the following margin/profit benefits:-
In terms of competing with Chinese car markers, in China I expect Tesla to match what the Chinese are doing and to have higher margins mainly due to brand appeal. Competing with Chinese carmakers elsewhere, I expect tariffs and shipping costs to aid Tesla.
For compact models I previously stated the following aim:- sales price $25k-$30K, margin 20%-30%.
The important point here is, as new models are introduced at lower price points, the design and the manufacturing process has the aim of accommodating that price point at a reasonable margin. It isn't the willy-nilly cutting of margins and prices to raise volumes, more like a systematic walk-down of COGs to allow good margins on lower priced, but cheaper to build models.
Overall conclusion - If Tesla does become the best manufacturer, the Bear talking point on margins is largely irrelevant. It is comparing apples and oranges. and fundamentally nor understanding the importance of efficient manufacturing. Or how quickly efficient manufacturing can be copied. It also doesn't recognise how inefficient legacy ICE manufacturing is.
The starting point is to recognise why Tesla margins are currently higher:-
- Tesla has brand appeal - people will pay a premium (Supercharging helps, but not as a permanent moat.)
- Customers will pay a premium for EVs - lower fuel and maintenance costs help offset some of the premium.
- Tesla is an efficient manufacturer.
- Tesla is vertically integrated
- Tesla doesn't have dealers.
- legacy ICE auto (and dealers) make some money on service and parts allowing lower sales prices.
Even matching what Tesla is doing in all of the areas above isn't an easy task for any other carmaker, even if it was a static target.
While Tesla doesn't have a lot of revenue from parts and service, they do have growing secondary auto revenues:-
- Insurance
- Resales of trade-ins
- Fast charging
- Software and subscriptions
- Accessories and merchandise.
- Higher quality
- Lower Capex
- More efficient production, better use of 3-D space.
- Lower parts and materials costs.
- Faster line speed.
- Improved logistics
- Simplifying designs, removing parts and labour.
- Improving automation. (Including Optimus)
Higher Quality has the following margin/profit benefits:-
- Improve / maintain Tesla brand appeal.
- Lower warranty costs
In terms of competing with Chinese car markers, in China I expect Tesla to match what the Chinese are doing and to have higher margins mainly due to brand appeal. Competing with Chinese carmakers elsewhere, I expect tariffs and shipping costs to aid Tesla.
For compact models I previously stated the following aim:- sales price $25k-$30K, margin 20%-30%.
The important point here is, as new models are introduced at lower price points, the design and the manufacturing process has the aim of accommodating that price point at a reasonable margin. It isn't the willy-nilly cutting of margins and prices to raise volumes, more like a systematic walk-down of COGs to allow good margins on lower priced, but cheaper to build models.
Overall conclusion - If Tesla does become the best manufacturer, the Bear talking point on margins is largely irrelevant. It is comparing apples and oranges. and fundamentally nor understanding the importance of efficient manufacturing. Or how quickly efficient manufacturing can be copied. It also doesn't recognise how inefficient legacy ICE manufacturing is.
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The Accountant
Active Member
Awesome - thanks for doing this.I went ahead and made one so we can have it for this quarter. As long as nobody vandalizes it or accidentally overwrites the numbers then this spreadsheet should work fine.
TeslaMotorsClub Investor Casual Quarterly Estimates Compilation
Q3 '22 TMC Quarterly Estimates - 2022 Q3,. .,Summary Statistics <a href="https://teslamotorsclub.com/tmc/posts/7122581/">Gigapress' post in TMC</a> TMC Username,Revenue,Auto Gross Margin Excl ZEV Creds,GAAP Earnings per Share,Non-GAAP Earnings per Share,Comment,Revenue,Auto Gross Margin Excl ZEV...
I got you...was that GAAP or non-GAAP?
The Accountant
Active Member
Yes - I gave my chart to someone on Twitter who posted it.
btw - I am now on Twitter trying to fight the good fight. My account is CPAinNYC
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