TSLA Market Action: 2018 Investor Roundtable

[jhm]

Thanks for your thoughts on this jhm. I was thinking just in terms of BEVs, but, your post is a good reminder that we are likely to see many PHEVs. We have quite different takes on the BEV supply crossing 50%. We'll see.

It looks like my curve is a few years ahead of yours. I'd point out that my model is strictly based on how quickly BEVs and PHEVs have been gaining market share over recent years (using a logistic growth model). So the current trajectory has BEV hit 55% market share by 2028. This could speed up or slow down. I'm inclined to think that it may speed up for competitive reasons. Competition for survival is much more motivating that mere compliance.

 

[Zhelko Dimic]

I would consider selling puts at this level, but I've never done it. Kinda tempting actually, but I don't have that much money to sit in my account to cover a conversion to stock. Say I have $300k to employ for this. That allows me to cover the possible conversion of 10 puts, right? Care to share a strategy around this approach?

You're correct. But you usually don't need as much money, maybe around 40-60% of it.
Trick is, you never need to execute these puts. If they're in the money, you can keep rolling them out, getting a bit of money each time. Now, if they're deep in the money, as price feel down, you are not going to make lots of money on time-value premium, but you can roll them out and delay execution until it makes sense to you, or they expire. Of course, the real danger is that price stay suppressed for a long time. And also, as puts get more in the money, your margin requirement will increase somewhat, so best to not approach your margin first time you're selling them. One good way to explore these options is see how much margin increases when you sell $350 put vs. $300 put, and also, see how much you get if you roll out $300 put $250 put in terms of time-value premium. Both of these options would emulate $50 drop and ensuing effects to margin, and ability to collect further premium

 

[Mokuzai]

If they're in the money, you can keep rolling them out, getting a bit of money each time.

Sorry if this is a dumb question...but by rolling them out do you mean just to buy it back and sell a different one? Also how common is it for the buyer to exercise the option prior to expiration before you get a chance to roll them out?

 

[Words of HABIT]

...and TSLA is again North America's top auto stock by market cap, outpacing GM by $280 million at close today, not that TSLA is limited to autos...

 

[SteveG3]

It looks like my curve is a few years ahead of yours. I'd point out that my model is strictly based on how quickly BEVs and PHEVs have been gaining market share over recent years (using a logistic growth model). So the current trajectory has BEV hit 55% market share by 2028. This could speed up or slow down. I'm inclined to think that it may speed up for competitive reasons. Competition for survival is much more motivating that mere compliance.

I see. I looked at this in some detail about a year or so ago. My recollection is that if you look strictly at BEVs, and back out Chinese mfgs and Tesla, the growth rate of annual BEV unit sales is somewhere from nil to maybe 5% from the global ICE incumbents.

re those global incumbents, I think there is ample evidence in public announcements about BEV goals, along with some very strong incentives pulling on them which we can deduce, that indicate their markedly different pace of moving to EVs is neither an accident or soon to catch up to Tesla and the Chinese automakers. Toyota, for example, 7 months ago updated their EV aspirations to reaching 10% emission free vehicles in 2030 (note the press release below says emission free, as in Fuel Cell vehicles being looked to as part of the plan needed to reach that 10%!). Luxury automakers in part are an exception to this- we already see strong signs of Tesla’s growth in their segment accelerating their movement. So, I agree, competition is a big motivator- the luxury makers are moving more now, and when the Tesla pickup hits, Ford and GM will likely decide to move much faster with their key money making pickup businesses. Toyota, Honda,..., they may really be at 10% or less BEVs in 2030.

To me a projection of BEV supply will be far more accurate if Tesla, China, the luxury automakers and all the rest of the global automakers are looked at as different buckets.

One thing to note about China, my memory (and it’s been a while, so when I have more time I can double check) the growth in EVs there has been on the back of very limited range vehicles. In established markets (Europe, NA), such vehicles have not been too warmly received. That is, if I’m remembering correctly, that growth in China has not required growth in battery production to provide supply for 200+ mile vehicles. China can move fast and could soon steer towards actually stepping up to the kind of battery production growth that matches the BEV volume growth they’ve had, but, going forward at a scale to supply for 200+ mile EVs. Will be interesting to see if they do.

I see accuracy taking a big hit if we just put in one category the couple of dogs moving to EVs like they are chasing a squirrel with the overwhelming majority of dogs (global ICE makers) moving as swiftly as a dog being dragged to the bathtub.

Major Shift Change: Toyota Announces Massive Electric Car Rollout, 10 EVs By Early 2020s

 

[Zhelko Dimic]

Sorry if this is a dumb question...but by rolling them out do you mean just to buy it back and sell a different one? Also how common is it for the buyer to exercise the option prior to expiration before you get a chance to roll them out?

Rolling them out is what you said it is: buy to close existing expiration, sell to open further expiration. You can sometime with some brokerages specify it as a multi-leg transaction that executes all or nothing (atomic operation . In such case you just specify difference in the price, you don't care which leg sell/is bought at which price. Also, sometimes you can trade time for money - sell further expiration at lower strike price, hence lowering your purchase price if it eventually executes. Works better with options that are not too deep in the money.
Exercising the option before it's due is quite rare, but it's a possibility. You wouldn't wait for last few days for something that's deep in the money, once all time-value premium is gone, higher chance it gets executed. But still quite low, I can't quantify though. I've played with options for years, never happened to me...

*BTW, no offense meant, but if you're asking these questions, I don't think you should trade option strategies. Or start very, very, very, very, really, very slowly. From someone who has been burnt...

 

[elasalle]

If you're talking about selling covered calls here, keep in mind where we are in the trading range. Historically speaking, there is a lot more risk at this level for those inclined to sell calls. You would in effect be betting that TSLA is not going to return back up to the upper, or even mid, range, at least not over the next 7 weeks. I would be much more comfortable taking the other end of that bet. TSLA could also go up then back down of course, but what's your plan if the timing is off and TSLA goes back up range and chops around there? That could easily happen IMO.

Easier said than done(stick to plan), but Sell Covered Calls when SP is high and Sell Puts when SP is down. Bonus for selling is when %IV is high.

I sold 25% of covered Calls (for Sept) against my LEAPS(19&20), just a week back thought a few would get hit, but now all in pennies ..

 

[Menifeer]

Sorry if this is a dumb question...but by rolling them out do you mean just to buy it back and sell a different one? Also how common is it for the buyer to exercise the option prior to expiration before you get a chance to roll them out?

Yes - "rolling" = buying to close and selling another to open.

Put options are very unlikely to be exercised when they have significant "time value" (more than $1). Compare the (current stock price) with the (exercise price minus the current put price) to determine the "time value". In the case of TSLA, when it approaches $1, I "roll".

 

[tivoboy]

Easier said than done(stick to plan), but Sell Covered Calls when SP is high and Sell Puts when SP is down. Bonus for selling is when %IV is high.

I sold 25% of covered Calls (for Sept) against my LEAPS(19&20), just a week back thought a few would get hit, but now all in pennies ..

Didn’t know one could sell a call against a call LEAP

 

[MikeC]

I would consider selling puts at this level, but I've never done it. Kinda tempting actually, but I don't have that much money to sit in my account to cover a conversion to stock. Say I have $300k to employ for this. That allows me to cover the possible conversion of 10 puts, right? Care to share a strategy around this approach?

Depending on your account and financial circumstances, you could:

-Buy fewer contracts or sell a lower strike
-Also buy lower strike puts at the same expiration - i.e., you sell ten 300s and buy ten 200s, you only need $100k to cover the difference now
-In a margin account, you can use your margin capacity without actually using margin and paying interest

 

[Mokuzai]

*BTW, no offense meant, but if you're asking these questions, I don't think you should trade option strategies. Or start very, very, very, very, really, very slowly. From someone who has been burnt...

No offense taken and I appreciate the advice. Been selling covered calls for years on other stocks and I've rolled out many times just wasn't familiar with the term. Only recently started with selling puts. Couple months ago when the SP was around $275 sold some July $300 puts which just expired worthless to the tune of a base M3 price.

Selling that far ITM was a bit out of my comfort zone though so think I'll be more cautious going forward. Don't normally post in this thread but I follow it daily and really appreciate all the wisdom.

 

[Lbkmxp100d]

No offense taken and I appreciate the advice. Been selling covered calls for years on other stocks and I've rolled out many times just wasn't familiar with the term. Only recently started with selling puts. Couple months ago when the SP was around $275 sold some July $300 puts which just expired worthless to the tune of a base M3 price.

Selling that far ITM was a bit out of my comfort zone though so think I'll be more cautious going forward. Don't normally post in this thread but I follow it daily and really appreciate all the wisdom.[/QUOTE

You sold 300strike puts with a SP trading at 275? why would you sell puts that far ITM?

 

[bdy0627]

You're correct. But you usually don't need as much money, maybe around 40-60% of it.
Trick is, you never need to execute these puts. If they're in the money, you can keep rolling them out, getting a bit of money each time. Now, if they're deep in the money, as price feel down, you are not going to make lots of money on time-value premium, but you can roll them out and delay execution until it makes sense to you, or they expire. Of course, the real danger is that price stay suppressed for a long time. And also, as puts get more in the money, your margin requirement will increase somewhat, so best to not approach your margin first time you're selling them. One good way to explore these options is see how much margin increases when you sell $350 put vs. $300 put, and also, see how much you get if you roll out $300 put $250 put in terms of time-value premium. Both of these options would emulate $50 drop and ensuing effects to margin, and ability to collect further premium

Thanks for the info. There's clearly a learning curve, so I think I'll start by just selling a couple of different ones to learn about it.

 

[Mokuzai]

Figured with (approximating values here) a $30 premium that worst thing that would happen is I'd own shares at a $245 cost basis which was the recent low, or buy them back and push them out. Also feel that the SP being under $300 is an anomaly and was playing to that.

 

[neroden]

Sorry for being a bit late to the party. Was it TSLA or SCTY put options you were writing?

I played it every way I could think of. I bought TSLA stock outright (and lent it back to short-sellers at interest), I bought SCTY stock outright (and lent it back to short-sellers at interest), I wrote in-the-money puts on TSLA (dated anywhere from weekly to Jan 2017), I wrote out-of-the-money puts on TSLA (dated anywhere from weekly to Jan 2017), I wrote a huge range of puts on SCTY (ranging from deep in the money to deep out of the money and from weekly to Jan 2017), I even bought a few deep OTM SCTY 2019 calls, and a few deep OTM TSLA 2019 calls (since they were cheap at the time -- they're substantially ITM now)

Each of them had different risks so I was sort of hedging my bets. They all paid off.

My last SCTY options trade was done (don't remember whether it was calls or puts) in the morning after the merger was approved but before they'd been repriced by the market makers to track TSLA. There was an amazing half hour delay before they caught up. Let nobody ever claim that markets are efficient.

And yeah, GAAP fell off the rails a while ago, you couldn’t design a system that obscures better than if you tried. When they embraced the socialist ethos to conflate balance sheet and P/L to require expensing of stock option grants, that was the final straw for me. Lease accounting, and deferred revenue for software subscriptions are other examples where GAAP numbers are fairly useless as a current measure of a company’s profitability.

There are plenty of others. You just have to know what to recalculate. Apparently this has always been true, since the first edition of Benjamin Graham's _Securities Analysis_ consists mostly of a long set of instructions for recalculations of stuff which was reported in misleading ways by GAAP of the time. What you have to recalculate changes over the decades but the principle remains the same..

 

[bdy0627]

I gather that he was very confident the stock was going to climb, which is why he sold puts expiring a few months out - to give it some time.

 

[neroden]

I've got some mid-September call options that I'm not sure what to do with. They're pretty deep in the money, bought $220 options back when the stock was...oh, about $300 several months ago. I'm basically break even right now since the time cost on DITM options is pretty small. At the time, I figured it wasn't likely to drop much more, but the upside was good. I'm not sure that thinking holds leading into the earnings report and there's little time for recovery before the due date if things go south.

Everyone is saying the numbers will be horrendous, but then again maybe that's already priced in? I'm thinking of dumping it and buying something much further out (e.g. Jan 2019) just as a way to reduce risk exposure to the q2 earnings report. Any thoughts?

Well, I'm guessing you're leveraged. If you have lots of dry powder you might just execute them and postpone the capital gains tax indefinitely. But if you don't, well, that's different.

 

[neroden]

I gather that he was very confident the stock was going to climb, which is why he sold puts expiring a few months out - to give it some time.

If you're referring to me, I was *extremely* confident that TSLA was worth more than $180/share either with or without the SCTY merger, and that the market would recognize that at some point. I was pretty confident that the merger would go through but hedged that by doing some TSLA trades as well. I was also harvesting massive option premiums because the IV was super high, and income from stock lending because the interest rates were super high, and I was comparing the two to try to figure out which was better.

I sort of couldn't decide how much I wanted to increase my overall long-term stockholding vs. holding cash, which is why I spread out the strike prices. If the stock was lower for longer, I'd increase my stockholding more, if it went up more I'd have more of the puts expire for cash. (I let the ones which were in the money at expiration execute; they were all cash-secured.) This seemed like a good idea at the time though I'm not sure I can really defend it.

 

[neroden]

Honestly, with the income tesla will be earning as m3 ramps I think legal costs will be a rounding error. Unless they lose of course.

I hope so but legal costs can be extremely expensive so it would be worth finding comparably-sited "lawsuit target" industries and seeing what their lawyer bills look like...

 

[neroden]

Option volatility will likely peak Wednesday afternoon. Consider closing you position before the 2Q18 results are reported then re-establishing a new position based on the information disclosed in the SH letter and CC. If you hold through Wednesday, theta will likely destroy those calls' value in the near term.

Better advice than mine