TSLA Market Action: 2018 Investor Roundtable

[HG Wells]

- housing loans (particularly if new housing is authorized by relaxation of zoning laws)

Neroden: bit confused by this.
By relaxing zoning laws are you referring to existing housing that is affected by comercial moving in or number of units per acre increasing ?

I invest in houses / land that is going comercial and make a pretty penny at it.
IE I bought rental houses that over 10-20 years became comercial (fast food) or got sewer and became apartments.
Example: Bought an old farm house on 2.5 acres in 2000 for cheap that is now getting sewer and selling it to build senior apartments.

My daughter's area is relaxing setbacks and the houses are snapped up, torn down and Mcmansions are being built.

Perhaps you mean where an adjacent area gets relaxed zoning but the house in question stays with the old zoning?
OR
A house has an existing mortgage, the area goes up in value due to relaxed zoning and the owner refinances to pull out equity, squanders the money and can't afford the new mortgage ?

Strengthening zoning laws can bankrupt you. House with land is worth 100 K structure 50K.
Zoning is strengthened and now the lot is too small for the house,
If house burns down you end up owing money and the lot is unbuildable. IE insurance only pays replacement costs if that.
My current 4 bedroom house fits that bill, Lot size would only allow 1 bedroom now. If lot was 100 sq ft smaller no house could be built.

 

[MikeC]

If I sell the calls, I make a loss of about $1200 and get back 3000 from my initial investment. Then to buy the shares at today’s closing price I would spend ~ 68000. Do I end up spending less this way overall for the 200 shares? Not sure how that is better or not?

Ignore the initial investment as it's immaterial to your decision at this point.

Your choice right now is to:

A) Execute your calls by putting in $65,000, which would give you 200 shares of TSLA worth $67,746.00. Essentially, this is the same as selling your calls for $2746.00.

B) Sell your calls for $1600 each, netting you $3200. The difference between $3200 and $2746 is your time value. You now have $68,200 and can buy 201 shares instead of 200.

This is using the numbers at close and they will change as soon as the market opens. Specific questions like this would be better off in https://teslamotorsclub.com/tmc/threads/newbie-options-trading

 

[hacer]

No clue what that means, sorry I am not an experienced options trader, still learning. Do you mind explaining a little more? The options expire on Friday, how can they have any time value?

Tesla closed today at $338.73, the call option (you never said, but they were call options right?) closed at bid $19.60, ask $20.25 which means you could have sold them for $19.60, or $3,920 minus commissions; exercising them would have let you buy the stock for $65,000 but if you paid the closing price for the same shares it would cost $67,746 (plus commissions). If you used the $3,920 you got from selling them, then your net cost was $63,826, or $1,174 less net cost to you for selling the options and buying the stock than just exercising the options. That $1,174 is the time premium the options still have; so $5.87 of the bid price for the option is time premium. You don't want to throw away $1,174 dollars.

Also, you could probably (but not guaranteed) sell the options for a bit more than the bid with a limit order because the spread is so large.

If you didn't already know this, you shouldn't be trading options. Seriously, you need to learn more before you play with options.

Finally, all of these prices are now history. Tomorrow will be different but there will still be time premium until a few seconds before 4:00 pm on the 16th. Tomorrow do what Sub told you - sell the calls and buy the stock. Then don't trade options until you know what you are doing.

 

[Hogfighter]

No clue what that means, sorry I am not an experienced options trader, still learning. Do you mind explaining a little more? The options expire on Friday, how can they have any time value?

They have about $3 in time value (325 plus 13 is 338). So if the stock does nothing in 3 more days, you’re down another 20%....not inconsequential.

 

[EVNow]

As someone else said, there are basically two duration strategies: pick a short-duration expiration to minimize the amount of time value you're paying for upfront (allowing more leverage), or pick a long-duration expiration to minimize the theta decay you'll be subjected to (planning to sell the option rather than hold it to expiry, but pay more upfront, so less leverage). After you've made this decision, it gives you a better pointer to how to make some of the other choices with respect to strike price.

Here is something I'm considering.

Buy a low leverage, low time decay (J20 or J21) call when I roll my J19 calls in a week or so. Then, mid Jan before Q4 earnings change to April '19. This way I'm hoping to not waste too much money on time decay yet preserve some leverage if the SP goes up fast before Q4 earnings.

 

[EVNow]

They have about $3 in time value (325 plus 13 is 338). So if the stock does nothing in 3 more days, you’re down another 20%....not inconsequential.

What are the chances SP won't do anything in 3 days ? Virtually zero.

 

[SpaceCash]

What are the chances SP won't do anything in 3 days ? Virtually zero.

What are the chances SP bounces around and ends the week at or around today's close? Not low.

Also tbh I secured my own 420 earlier and gave a flawed response regarding the call option situation. As others pointed out, by selling the option tomorrow you will harvest some time value which saves you cash compared to executing early.

General rule of thumb is NEVER to execute early. Sell the option and buy shares if you need shares

 

[EVNow]

What are the chances SP bounces around and ends the week at or around today's close? Not low.

Depends on your definition of low and the range you are looking at. Given the recent history chances are high that we won't end the week ~ 339.

Fidelity tells me using HV30, chances of the SP being 338 to 339 is just 1.67% on 11/16 - my definition of virtually zero. Between 330 and 350, it is a respectable 31%. Still, TSLA is so volatile that the chances of the SP being within $10 of the current price, in 3 days, is only 1 in 3.

 

[SpaceCash]

Depends on your definition of low and the range you are looking at. Given the recent history chances are high that we won't end the week ~ 339.

Fidelity tells me using HV30, chances of the SP being 338 to 339 is just 1.67% on 11/16 - my definition of virtually zero. Between 330 and 350, it is a respectable 31%. Still, TSLA is so volatile that the chances of the SP being within $10 of the current price, in 3 days, is only 1 in 3.

Fair enough.

I am rooting for some action

 

[generalenthu]

@neroden did you REALLY mean to disagree with my post thanking this man for his military service?

Oh God, can we take this to a new thread please. NOT HERE!

 

[Artful Dodger]

315 can't be the max pain of the chart you showed. Moving up to 335 will wipe out over 6k more puts and barely add any winning calls. Max pain for the chart is surely in the 330-335 region.

Hi hacer,

Yeah, I wondered about that myself. I'm no Options expert, but at the link opricot.com provides 3 charts:

1. TSLA Open Interest
2. TSLA Options Volume
3. TSLA Max Pain

The chart I posted was #2, TSLA Options Volume for 11/16/2018. The "Max Pain" figure I quoted was from Chart #3, TSLA Max Pain.

Since this morning, the Max Pain number has increased, currently $320 (see chart attached below). Note that Max Pain figures are different for each selected Expiration Date (drop-down on top-right of page), so it does seem to be calcuated for this week.

Without doing the arithmetic myself, I'm just going to accept their numbers. The Max Pain concept itself is controversial, and I think there are other bigger factors driving price action for TSLA.

Does anyone have a 'Max Pain' spreadsheet that does all the arithmetic? That'd be handy to analyse this data direct from NASDAQ.

Cheers!

 

[TradingInvest]

For me the best time to buy Call options is AFTER the stock dropped a lot. Ideally after the second or third down leg. If I plan to buy 100 Calls, after a big drop lasted for several weeks, that's the time to start buying the first 5 Calls, then if they get a lot cheaper, add another 10 calls, then another 10 calls... If the stock runs away, I don't chase it, I might have only accumulated a total of 25 Calls, that's fine. Basically, buy low, be conservative, stocks can drop lower and last longer.

What tend to be true is after a huge drop, we have the best chance for a rally, and we have the best chance to make a nice gain. Technical indicators can help to find the buy points. This is like playing poker, wait for my best hand, and only bet with the chips my can afford to lose.

A while back I accumulated some Jan 2021 Leaps, I plan to hold them for longer term in case Tesla solves general AI based self-driving. There is a decent chance but not a sure thing. Tesla could rally a lot in that case.

 

[ZeApelido]

Bloomberg - Are you a robot?

Waymo to Start First Driverless Car Service Next Month

 

[SpaceCash]

Bloomberg - Are you a robot?

Waymo to Start First Driverless Car Service Next Month

That article uses VERY uncertain wording and I don't believe they'll be starting much of anything next month.

VaporLaunch

 

[Artful Dodger]

the Max Pain number has increased, currently $320 (see chart attached below).

[ resend Max-Pain chart for @hacer ]

 

[Buckminster]

Amazon.co.uk: Watch Halt and Catch Fire Season 1 | Prime Video
Recommended to all you GenX geeks out there.

 

[Artful Dodger]

VaporLaunch

Isn't vaping illegal now in public?

 

[SpaceCash]

Isn't vaping illegal now in public?

You can't stop the future, Lodger

 

[jasonb]

Interesting to see where the general auto industry is heading.

Seriously, The economics are going to change fast. Germans are going to take huge hits on the 3-series level sedans and Q5 level SUVs from Teslas in the $50-60k range and the Japanese are going to take hits on the Camrys and Accords with $35-40k Teslas.

Here are my predictions for 2023.

US: Ford - pickups, GM - bailout
Japan: Toyota, Nissan - head in sand waiting for bailout; Mazada - bankruptcy; Subaru - takeout
Germany: BMW - bankruptcy / takeout; Mercedes - maybe can make it + bailout; VW - maybe can make it + bailout
Italy: Fiat - bankruptcy

interesting its very similar to my list
jason bishop on Twitter
Mazda
Subaru
Ford
Fiat
BMW
Honda

 

[Fact Checking]

Does anyone have a 'Max Pain' spreadsheet that does all the arithmetic? That'd be handy to analyse this data direct from NASDAQ.

I think it's better to eyeball the actual open interest distribution in straddle form:

 2018 Nov 16 $TSLA options open interest, # of contracts, rounded to $10

 PUT $280:  9,867 ##########          ,   CALL $280:  2,588 ###              
 PUT $290:  6,429 ######              ,   CALL $290:  3,186 ###              
 PUT $300: 14,319 ##############      ,   CALL $300:  9,709 ##########      
 PUT $310:  6,950 #######             ,   CALL $310:  5,203 #####            
 PUT $320:  7,998 ########            ,   CALL $320:  9,860 ##########      
 PUT $330:  8,577 #########           ,   CALL $330:  5,857 ######          
 PUT $340:  6,160 ######              ,   CALL $340:  8,729 #########        
 PUT $350:  6,396 ######              ,   CALL $350: 16,709 #################
 PUT $360:  1,032 #                   ,   CALL $360: 12,536 #############    
 PUT $370:    584 #                   ,   CALL $370:  9,492 #########        
 PUT $380:    513 #                   ,   CALL $380:  7,280 #######          
 PUT $390:    276                     ,   CALL $390:  4,819 #####            
 PUT $400:    489                     ,   CALL $400:  4,701 #####            
 PUT $410:    402                     ,   CALL $410:  2,066 ##              
 PUT $420:     29                     ,   CALL $420:  2,539 ###

NOTE: the distribution chart rounds all strike prices to the next $10 to make it all easier to interpret.

What makes this week's expiry a bit unusual is the significant overlap between CALL and PUT options open interest, spanning a wide range of ~$50.

Another change is that CALLs are much better represented in the near-the-money range - the 2:1 historic short-biased PUT:CALL ratio of $TSLA is no more. This means that there won't be the usual downwards volatility acceleration factor from market maker delta hedging inventory management. Even if the usual suspects manage to place a slanted Tesla-negative article on Bloomberg, Reuters or the WSJ, the dip might not be as strong anymore. In fact CALLs are over-represented 2x, so there should be a bit of an up-bias from this.

The peak of PUTs is at $300, with almost complete losses at around $350, and the peak of CALLs is at $350, with a much longer tail down with almost complete losses below $300.

Should the SP breach any of these key levels I'd expect strong market reaction: either a strong rejection or a strong break-through. $350 earlier this week was met with strong rejection.

I'm not sure how well max-pain forces are going to work this week, due to this heavy overlap between PUT and CALL open interest, which makes the max-pain outcome dependent on the composition of options writers and buyer, of which we know very little. For example if there's an aggressive market participant who wants the price to close above $350 there could be quite some fireworks on Friday. Conversely, there's handsome rewards in closing below $300.

December 21 is much clearer in comparison, with two distinct ranges around $350:

 2018 Dec 21 $TSLA options open interest, # of contracts, rounded to $10

 PUT $280:  4,704 #####               ,   CALL $280:  1,870 ##              
 PUT $290:  2,804 ###                 ,   CALL $290:  1,680 ##              
 PUT $300:  7,305 #######             ,   CALL $300:  3,064 ###              
 PUT $310:  2,967 ###                 ,   CALL $310:  1,710 ##              
 PUT $320:  2,303 ##                  ,   CALL $320:  2,527 ###              
 PUT $330: 10,702 ###########         ,   CALL $330:  2,592 ###              
 PUT $340:  3,029 ###                 ,   CALL $340:  5,341 #####            
 PUT $350:  8,912 #########           ,   CALL $350: 14,214 ##############  
 PUT $360:  1,145 #                   ,   CALL $360:  3,668 ####            
 PUT $370:    577 #                   ,   CALL $370:  2,269 ##              
 PUT $380:    393                     ,   CALL $380: 14,848 ###############  
 PUT $390:     89                     ,   CALL $390:  3,914 ####            
 PUT $400:    241                     ,   CALL $400:  7,853 ########        
 PUT $410:     26                     ,   CALL $410:    843 #                
 PUT $420:     38                     ,   CALL $420:  4,024 ####

Which puts the 2018/Dec/21 max pain clearly at $350 from a market maker inventory perspective - at least as things stand today - there's still a month to go.