TSLA Investor Discussions

[brianman]

Not sure I understand 3 and 4.
EDIT:
3: At any time the holder can force the sale if the share price falls below $15. Does not need to wait until January ????

I'll try to clarify.

The reason to buy a put is to lock in the ability to buy stock at a specific price (regardless of what the market does with the stock). Puts have an expiration date. Anytime (during market hours) prior to the expiration date, the option holder can pull the trigger -- exercise, force the option seller to make good by buying the shares at that price.

My previous phrasing could have been better: The option holder doesn't have to wait for the stock to dip below the price on the put ($15) to choose to exercise, it just doesn't usually make sense to exercise an option when the stock is above the put price. [It doesn't make sense because the holder would be better off just selling the stock at market price in that case and then reselling the option.]

 

[brianman]

Now Tesla is having delays, some quality issues (causing the delays), all creating a much more ambitious ramp up than before, discussing raising more capital when I thought the DOE loan was supposed to be more than sufficient margin for error.

Tesla Motors' CEO Discusses Q2 2012 Results - Earnings Call Transcript - Seeking Alpha

And when we looked at our cash flow forecasts, whether we did a bunch more deliveries in the third quarter or basically if we moved several hundred deliveries from third quarter, one way or the other, it doesn’t change our cash low point. And we are optimizing for our cash low point, from a cash flow standpoint.

Yeah. Actually, I think that there is arguably some merit to raising incremental funding just to protect against an unforeseen event. I do want to emphasize that our cash flow projections require no funding raise at all. If we do not raise any funding, we can reach cash flow positive with decent margin.

Well, the only two things we’re considering are raising zero money or a small amount. There’s not some third option. Then if we raised a small amount of money, it would be probably half of it for cushion value and then half of it for future projects which would be the Model X and the Gen III. We’ve got to come up with a better name than Gen III by the way.

[regarding capital raise:] But I’d like to exclude the very near future. We will not be raising money in the very near future.

The guy can't make it any clearer that Model S funding and company cash flow are currently fine -- not in need of a capital raise and when/if they do a capital raise it won't be in the very near future and it would be spent on X and beyond.

You have to decide whether you believe him or not. It's that simple, IMO.

 

[Uncle Ron]

EDIT,,

 

[brianman]

I should have been into this years ago.

So they will pay me $0.95 to buy TSLA at $15 anytime between now and January 13th, 2013? If it stays above $15 I keep $0.95.

Boy, I may have made some bad decisions back in the 60's, but oh they were fun!

Slight correction in red, but generally you've got it.

With the stock currently at $26.25, that's a return of 3.6% for a ~5 1/2 month period. Not a great return but it's a very low risk bet, IMO.

If you were to get more aggressive, Jan $25 puts are $4.60/share which maps to 17.5% return (for the same ~5 1/2 month period) but with much higher risk of exercise and a higher buy price if that happens.


If we have financial skilled folks on the forum, feel free to PM me the corresponding annualized rates of return for those two examples and I'll update the post.

 

[smorgasbord]

You should understand what the person at the other end of your transaction is thinking. Remember that the person buying the Put from you is thinking the stock will (or at least may) go down.

An easy way to short a stock you think is going to tank is to buy PUT options. You buy the Aug $28 Put for, say, $1.50 and if the stock goes to $20 you can simply buy the stock at $20 and then turn around and immediately sell it to the Put writer for $28. You end up making $8.00 - $1.50, or $6.50 per share. If the stock takes off on you, your maximum loss is the $1.50 you paid for the option. I think there's a lot of this going on with Tesla, although not for such near-terms like August.

Another reason to buy Puts is to protect gains in stock you own. Let's say you bought TSLA around its IPO for $19. You're scared that if Elon makes a mistake, the stock will drop to $5. Buying a March $20 Put for a couple bucks protects you from that loss. If the stock drops to $5, you still get to sell yours at $20 - and it only cost you $2 for that insurance. If the stock drops before March, you could even decide you don't need the insurance and sell the Put for even more than you paid for it. And even if the stock goes up, the Put is still worth something for a while.

New Put writers sometimes get panicky when the stock drops to near or slightly below the strike price. That doesn't mean you're going to get exercised, though. The $28 Put option you sold cost someone $1.50. If the stock is $27 and they make you buy at $28, you're still ahead $0.50 even if you turn around and resell that stock for $27. And even if the stock drops below your $26.50 break-even, that doesn't mean you're going to get exercised. The option itself may be worth more than $1.50 price delta due to what's called time value - that is, over time the stock could drop further and the option become even more valuable. So as long as the stock doesn't pay a dividend (Tesla doesn't), you could be sitting underwater on the Put for weeks.

A few times I've been on the wrong side of selling a Put or a Covered Call that ended up not getting exercised because the stock price recovered by options expiration. And remember that if you sold the Put instead of buying the stock that day, getting exercised means that you ended up buying the stock cheaper than you could have bought it that day. That keeps you sane and solvent.

 

[JRP3]

Figures, I picked up some more yesterday and it went further south today, but not by that much. I really am done at this point. Unless it really drops some more....

 

[Uncle Ron]

EDIT,,

 

[bmek]

You should understand what the person at the other end of your transaction is thinking. Remember that the person buying the Put from you is thinking the stock will (or at least may) go down.

An easy way to short a stock you think is going to tank is to buy PUT options. You buy the Aug $28 Put for, say, $1.50 and if the stock goes to $20 you can simply buy the stock at $20 and then turn around and immediately sell it to the Put writer for $28. You end up making $8.00 - $1.50, or $6.50 per share. If the stock takes off on you, your maximum loss is the $1.50 you paid for the option. I think there's a lot of this going on with Tesla, although not for such near-terms like August.

Another reason to buy Puts is to protect gains in stock you own. Let's say you bought TSLA around its IPO for $19. You're scared that if Elon makes a mistake, the stock will drop to $5. Buying a March $20 Put for a couple bucks protects you from that loss. If the stock drops to $5, you still get to sell yours at $20 - and it only cost you $2 for that insurance. If the stock drops before March, you could even decide you don't need the insurance and sell the Put for even more than you paid for it. And even if the stock goes up, the Put is still worth something for a while.

New Put writers sometimes get panicky when the stock drops to near or slightly below the strike price. That doesn't mean you're going to get exercised, though. The $28 Put option you sold cost someone $1.50. If the stock is $27 and they make you buy at $28, you're still ahead $0.50 even if you turn around and resell that stock for $27. And even if the stock drops below your $26.50 break-even, that doesn't mean you're going to get exercised. The option itself may be worth more than $1.50 price delta due to what's called time value - that is, over time the stock could drop further and the option become even more valuable. So as long as the stock doesn't pay a dividend (Tesla doesn't), you could be sitting underwater on the Put for weeks.

A few times I've been on the wrong side of selling a Put or a Covered Call that ended up not getting exercised because the stock price recovered by options expiration. And remember that if you sold the Put instead of buying the stock that day, getting exercised means that you ended up buying the stock cheaper than you could have bought it that day. That keeps you sane and solvent.

The informaton above is accurate. Here is some additional information regarding options ...

'American options' can be excerised at any time prior to expiration. If the options are 'in-the-money' at expiration then they are exercised on your behalf.

The (theory is that the) value of an option is, among other things, a function of the volatility of the underlying stock, the amount that the option is in-the-money (or out-of-the-money) and the time to expiration. Even if an option is 'in-the-money' it should trade higher than its intrinisic value (current price less the strike price). Thus (theory says) options should never be exercised prior to expiration as the value of the option is higher than the stock price plue the intrinsic price.

Reality is that I have written options that were 'in-the-money' and have had more than a month to expiration. To my surprise, the option was exercised! For some reasons, the option holder decided to exercise the option even though they could have sold the option for higher proceeds. There may have been tax reasons and transaction costs that made them exercise the option before its expiration.

The lesson here? Be prepared for the option holder to exercise the option prior to the expiration date. And, please note that the probability of exercise prior to expiration increases with deep 'in-the-money' options.

The Jan $15 puts are way out-of-the-money. Some of the higher August puts, with less than a month to go, could get exercised prior to expiration.

 

[Uncle Ron]

EDIT,,

 

[blakegallagher]

Anybody actually worried (aside from Cali) about the price dip? If I had any extra money I'd be buying a lot more right now.

My only real worry is my December 30 dollar options.... and a couple 35 dollar options i have for December that i bought on the way up.... shame on me



Edit: all options i have are basic call options

 

[brian45011]

Anybody actually worried about the price dip?

Not to be debbie downer but those who may be a little over their skis should be aware that Elon bought 1.4 million shares last May using an enhanced $50 million line of credit from Goldman Sachs Bank. The share price has been lower since, most particulary before the October Ride Event and briefly when Rawlinson unexpectedly departed in January, but the company still had plenty of time to deliver. The details of the loan have not been publicized, but it wouldn't surprise me if GS Bank now has a tighter string on its money since the delivery timefrande has shortened. The share price is now about $2.5o below Elon's purchase price. If the decline continues, and GS Bank were to ask for additional security, Elon might have to sell some of his interest to cover. That event would not be viewed favorably by mutual funds who have not carefully investigated the longer term opportunity of this stock. I am in no way predicting this will happend, but those who are over-extended should be aware of the possibility and protect themselves accordingly.

Permission to flame granted.

 

[benji4]

With the stock currently at $26.25, that's a return of 3.6% for a ~5 1/2 month period. Not a great return but it's a very low risk bet, IMO.

If you were to get more aggressive, Jan $25 puts are $4.60/share which maps to 17.5% return (for the same ~5 1/2 month period) but with much higher risk of exercise and a higher buy price if that happens.


If we have financial skilled folks on the forum, feel free to PM me the corresponding annualized rates of return for those two examples and I'll update the post.

The current stock price doesn't really have much to do with the return in this case since the strike price is $15 and that is where you will buy in if your puts are called. First let's talk about selling 'naked' puts in which you are not SHORT Telsa shares. If you happen to be long Tesla shares, the puts you sell are still naked because you will be buying the shares at $15 if the put options are called, not selling them.

Your return if the puts are called at the strike price would be 0.95 / 15 = 6.3%. that annualizes to 13.6% since there are 170 days left on the contract (6.3% x 365/170= 13.6%). Sounds great so far, but.... if the stock drops below $15 it's a different story. Between $14.05 and $15 you still make money on the trade, but anything below $14.05 puts you into the red, and it gets ugly fast. If the stock price closed at $13.10, for example, you lose double your 95 cent premium, a return of -100%.

So how do you protect yourself? You could write 'covered' put options by being short an equal number of Tesla shares to the number of puts your write. If the share prices drops below $15, the shares you are short will simply be cancelled out with the shares you buy at $15.00. You keep your $0.95 per share premium for writing the puts, and you also made a handsome profit on the decline of the shares from their current value down to $15. A decline of $26 to $15 or below, for example, gives you a profit of $11 per share -- much greater than your 95 cent per share premium. If Tesla shares are flat you don't make anything from the shorted shares, but you still keep your 95 cent premium in any case.

That sounds like a pretty good deal until you think about what happens if Tesla's stock price goes up rather than down. You pocket the 95 cents per share for the puts you sold, but any price gains above 95 cents put you into the red as your losses mount on the shorted shares. If the stock currently trades at $26, you are in the black up to $26.95, and you lose money as the stock continues to rise from there. If the stock settles into the mid 30's or more, your loss would be catastrophic.

It's interesting that in selling either naked or covered puts, there is a distinct set of risks that could wipe out your whole stake or worse. Selling naked puts is a bullish because if the stock goes up, stays flat, or at the very least stays at or above $15, you pocket the entire premium. The downside as explained above is that if the stock drops below $14.05, you start to lose money very rapidly. Worst-case scenario: the stock is delisted. Before the delisting date option positions will be liquidated, and you end up buying worthless shares for $15 per share.

Selling covered puts on the other hand is taking a bearish stance on the shares since all of your upside depends on the shares dropping right down to the strike price where your maximum gain is realized. The risk factor here is if the shares rise in value from wherever you short them, the $0.95 premium will get eaten up pretty quickly. Any takers still? :smile:

 

[brianman]

The current stock price doesn't really have much to do with the return

My analysis was in comparison to just buying the stock at market price today. As such, the return calculations are relative to that.

Further, there's no downside "risk of having to cover" if you actually want the shares. You're just charging the market a premium to maybe make you buy later instead of choosing to buy now. There's definitely upside risk in what I was describing -- you don't actually own the shares and thus don't get rewarded if it spikes between now and January.

 

[bmek]

The current stock price doesn't really have much to do with the return in this case since the strike price is $15 and that is where you will buy in if your puts are called. First let's talk about selling 'naked' puts in which you are not SHORT Telsa shares. If you happen to be long Tesla shares, the puts you sell are still naked because you will be buying the shares at $15 if the put options are called, not selling them.

Your return if the puts are called at the strike price would be 0.95 / 15 = 6.3%. that annualizes to 13.6% since there are 170 days left on the contract (6.3% x 365/170= 13.6%). Sounds great so far, but.... if the stock drops below $15 it's a different story. Between $14.05 and $15 you still make money on the trade, but anything below $14.05 puts you into the red, and it gets ugly fast. If the stock price closed at $13.10, for example, you lose double your 95 cent premium, a return of -100%.

So how do you protect yourself? You could write 'covered' put options by being short an equal number of Tesla shares to the number of puts your write. If the share prices drops below $15, the shares you are short will simply be cancelled out with the shares you buy at $15.00. You keep your $0.95 per share premium for writing the puts, and you also made a handsome profit on the decline of the shares from their current value down to $15. A decline of $26 to $15 or below, for example, gives you a profit of $11 per share -- much greater than your 95 cent per share premium. If Tesla shares are flat you don't make anything from the shorted shares, but you still keep your 95 cent premium in any case.

That sounds like a pretty good deal until you think about what happens if Tesla's stock price goes up rather than down. You pocket the 95 cents per share for the puts you sold, but any price gains above 95 cents put you into the red as your losses mount on the shorted shares. If the stock currently trades at $26, you are in the black up to $26.95, and you lose money as the stock continues to rise from there. If the stock settles into the mid 30's or more, your loss would be catastrophic.

It's interesting that in selling either naked or covered puts, there is a distinct set of risks that could wipe out your whole stake or worse. Selling naked puts is a bullish because if the stock goes up, stays flat, or at the very least stays at or above $15, you pocket the entire premium. The downside as explained above is that if the stock drops below $14.05, you start to lose money very rapidly. Worst-case scenario: the stock is delisted. Before the delisting date option positions will be liquidated, and you end up buying worthless shares for $15 per share.

Selling covered puts on the other hand is taking a bearish stance on the shares since all of your upside depends on the shares dropping right down to the strike price where your maximum gain is realized. The risk factor here is if the shares rise in value from wherever you short them, the $0.95 premium will get eaten up pretty quickly. Any takers still? :smile:

I would never write puts unless I was totally comfortable buying the stock at the strike price less the premium for the put. And, I would monitor the price movements until expiration as if I was long on the stock.

In the current market, if I wrote some August puts and the options are excercised then I'd write covered calls to play the volatility.

Options have tremendous leverage and one must always be prepared to lose ...

 

[benji4]

My analysis was in comparison to just buying the stock at market price today. As such, the return calculations are relative to that.

Still the same calculation since you'll be able to by 26/15 as many shares as you would buying it at the current price.

Further, there's no downside "risk of having to cover" if you actually want the shares. You're just charging the market a premium to maybe make you buy later instead of choosing to buy now. There's definitely upside risk in what I was describing -- you don't actually own the shares and thus don't get rewarded if it spikes between now and January.

That's true. If you are happy at getting in at $14.05 regardless of potential downside from there, it is a pretty good strategy. And if it never goes below $15 you just walk away with $0.95 no questions asked.

 

[mnx]

sold the August 25$ puts today.

cmon TSLA time to bounce...

 

[Iamthecaliflower]

I read somewhere that Fidelity is selling their stake? Is there any validity to this? Is the only explanation for this much selling on no news. WTH!

 

[thelastdeadmouse]

I'm not sure I'd get into puts regardless of my level of understanding, but its a tempting concept if I'm understanding this correctly.

At the moment, I'm seeing Jan 19 puts with a $24 strike for $2.40. Now I'm long Tesla (1 year +) and I'm not planning on trying to sell on crests (besides obviously on a short squeeze), and I'd be very happy to get to get in at $21.60 a share as its far lower than my average purchase price so far. On top of that, I'd ideally like to pick up another 25 or so shares anyway.

In this circumstance, is there really any downside in selling a put other than I might not end up getting the shares I wanted? If it stays high, I either pocket the $2.40 per share, or I get the shares at below market price. If it goes low, I have to buy the shares but at a price that I'd be happy paying since I'm long anyway, and its lower than my average buy, current price, and the level at which I'd be setting a limit buy.

If I were to do it, I'd probably stay away from the 24 put, but the concept of the 15 one is intriguing. I can't foresee any circumstance where the price would go that low besides near total failure of the company, and even then I'd expect Diamler or Toyota to attempt a buyout.

 

[KBF]

Woohoo! Picked up another batch of shares this morning. Glad my broker didn't get back to me yesterday, it means I get a bit of a better deal.

This drop makes sense. A lot of big investors shorted when the stock was well over $30 and if I understand correctly they'll be selling now and buying back in to make a hefty profit off of those they have been manipulating. Once they're back in, you'll see good ratings and analysis and the price will rise.

 

[Iamthecaliflower]

How long can this insanity go on!!!! The entire year went own the toilet during the past week for no reason. Where is support?