TSLA Market Action: 2018 Investor Roundtable

[shlokavica22]

To be entirely honest, I'm not focused on calculated delta.

Well, you should.
You do all the job (calculating expected share price, events, modeling, etc.) and then just place a bet, that for you is enough to be winning bet (not that there is anything wrong with that).
The game is actually this- How much you pay per 1 delta and what is the risk you are prepared to take.
You already play this game (whether you recognize/admit that or not). Till now you paid full stock price per delta, but suddenly you want more delta for your buck and choose to buy options (and the risk attached to that). But since the option's delta is not a constant, there is a variety of positions with vastly different risk/reward ratio (delta being one of the important impacting elements).

What made me ask you initially about your choice is not the reward part, but actually the risk you took. And since you are well respected member here, others can follow and take the same risk without recognizing that they can get at least the same reward (provided the stock goes in the projected direction) with significantly less risk.

 

[kbM3]

That is why my Roth is entirely TSLA right now.

Yeah. TSLA in my Roth was how it started. Then my after tax and then my traditional IRA. I’m now coming to my senses a little and diversifying my traditional IRA. It is very hard to sell shares in the 300’s that I believe will eventually be worth over $1k, but as many wise people on this forum, whom I greatly respect point out, one must consider the bad alternatives even if they’re unlikely.

 

[Carl Raymond]

There will be a next recession.

You can't run an economy faster than the available work supplied by human labor -- this changes as tech develops, but slowly. That is the *traditional* source of inflation, identified by the pre-Keynesian economists.

You can't run an economy faster than the food supply. That is the *ancient and medieval* (pre-economics) source of recessions. Climate change means this one will probably actually be coming up on us soon. Ugh.

You can't run an economy faster than the available *money* used to make deals happen. (Unless you go full command-and-control military-hierarchy, which usually has its own limitations due to failure to do price discovery). This is the source of recessions identified by *Keynes*, and the one which caused most of the recessions in the 19th and first half of the 20th century.


Yes, we go back to being labor constrained, or food constrained, or water constrained, or money constrained.


You've missed the other two, more common, causes of recessions. We'll hit one of them eventually. When, not obvious.

Thanks. I accept your wisdom on this. My point stands that a cleantech boom removes one huge obstacle from the boom bust cycle - the oil supply constraint won't be there. So yes, I guess we'll find another wall to hit. But it is going to be strange new territory. Economists and stock analysts reflexively use the oil price as an economic speed gauge. That gauge is in the process of being broken.

 

[Artful Dodger]

Neil deGrasse Tyson: Elon Musk Is The Most Important Person Alive Today

 

[Buckminster]

I plan to rollover to april '19 as soon as I feel that the Q4 report has been fully priced in, regardless of whatever that price happens to be. I have a wide range of possible prices depending on how the macros fare and whatever other events happen between now and then (for example, a possible reformation of the US EV tax credit, or solid signs that it's moving in that direction; good news out of GF2 & esp. GF 3 would also be big drivers). My median expected value is $385, with half probabilities at $329 and $425.

Note that I said "when I feel that the Q4 report has been priced in", not "immediately after it comes out". For me, the key issue with the Q4 report is that it (in all likelihood) will put the lie to the "Q3 was a one-time engineered anomaly" argument. The more that Tesla looks like a "reliable profitable growth stock", the more money is going to flow into it. But I don't expect this to happen instantly. Just like we saw a fairly slow rise after Q3, I expect the same to happen with Q4.

But there's a lot of uncertainty, so I've got a pretty broad probability spread in both directions.

Some people here will view me as unreasonably bullish, and some will view me as unreasonably bearish. I'm perfectly happy with being in the middle. I feel I'm well prepared for any outcome, particularly if I get a good opportunity (=high TSLA value) to sell some high strike price covered Feb '19 calls to augment my stock gains (or offset any losses) at the cost of missing out on any (IMHO improbable) large spikes in the stock price.

Super bull membership denied. Too much logic for my taste... I on the other hand can smell $700. It will taste of marshmallows dipped in Madagascan chocolate. Champagne is so $500...

 

[Right_Said_Fred]

80B based on what? Lets see if there is any sustainable profit in the next couple of quarters. The profitability now is as good as it gets. There are strong headwinds after Q4.

Despite of hiding your posting history I can see that you’ve been trolling other threads. Will you now start in this one?

 

[Silent Ludicrosy]

That is why my Roth is entirely TSLA right now.

What brokerage lets you do that? I have a Roth but my only choices are index and managed funds.

 

[KarenRei]

Well, you should.
You do all the job (calculating expected share price, events, modeling, etc.) and then just place a bet, that for you is enough to be winning bet (not that there is anything wrong with that).
The game is actually this- How much you pay per 1 delta and what is the risk you are prepared to take.
You already play this game (whether you recognize/admit that or not). Till now you paid full stock price per delta, but suddenly you want more delta for your buck and choose to buy options (and the risk attached to that). But since the option's delta is not a constant, there is a variety of positions with vastly different risk/reward ratio (delta being one of the important impacting elements).

What made me ask you initially about your choice is not the reward part, but actually the risk you took. And since you are well respected member here, others can follow and take the same risk without recognizing that they can get at least the same reward (provided the stock goes in the projected direction) with significantly less risk.

To repeat: Your argument is built on two things that I do not accept as premises. One, that delta, which is based on sigma, which is based on market activity (aka, consensus view), should be trusted uncritically - regardless of whether one does not agree with the market consensus on likely stock movement (something that applies to most people here). And two, that there exists a such thing as an "obviously better call", despite the existence of automated trading systems, which if true could just purchase said "obviously better calls" on options and write the "obviously worse calls".

If you have an issue with this, you should explain why:

1) You think we should trust sigma (and thus delta) despite not trusting the market consensus on likely stock movement
2) How "obviously better calls" and "obviously worse calls" would be expected to persist without automated trading systems exploiting them.

Delta is entirely unnecessary when one feels they have a good grasp on specific likely market movement driven by specific market news that will occur at a specific known timepoint, but lower confidence outside that range. In such a case, options that expire shortly after said news have little time value; only (modeled) inherent value matters. Yes, longer-term options will also be affected by this news, but they also have time value affected by a sigma value for which one has low confidence. Why should I invest in variables that I have low confidence in?

In case you're curious, I actually expect volatility to drop after Q4. Not disappear, but be lower than Q4, and a lot lower than Q3 (back in Q2-Q3 I predicted lower volatility in Q4 than Q3, and it certainly looks like we're headed that way). The reasoning is simple: Tesla has been incredibly volatile due to two competing theses, whose adherents have been equally passionate about: the bullish thesis, which requires no repeating, and the bears' "Tesla is incinerating cash and is going to need to have an imminent capital raise (if they even can!) before being flooded by Tesla killers in the market place" thesis. Q3 being profitable was a serious blow to the latter. Two profitable quarters in a row will render it as fringe. People will still dispute the proper valuation and how the market will evolve, and there will continue to be both bulls and bears, but the polarization in the mainstream will not focus around such radically differing views ("Off to the moon!" vs. "Imminent bankruptcy").

If volatility is lower over 2019 than is currently assumed, then that lowers delta for long-term options. Which makes long-term options a worse investment.

But to reiterate: see the paragraph beginning with "Delta is entirely unecessary when...".

 

[EVNow]

One, that delta, which is based on sigma, which is based on market activity (aka, consensus view), should be trusted uncritically - regardless of whether one does not agree with the market consensus on likely stock movement (something that applies to most people here).

I've been tracking price movement of some options over the last couple of months on a daily basis. The price movement doesn't match delta, so I stopped worrying about delta.

 

[Do It]

80B based on what? Lets see if there is any sustainable profit in the next couple of quarters. The profitability now is as good as it gets. There are strong headwinds after Q4.

This is FUD! Q3 will not be the “as best as it gets” quarter for the following obviously reasons:

1. Model 3 production process is far from fine-tuned at this stage so there is significant room to improve efficiency resulting in lower cost in the next few quarters
2. Q4 2018 has the fed tax credit tail wind
3. Q1/Q2 2019 has Model 3 to China/Europe and +7k/week production rate
4. Beyond Q2 2019, China GF, model Y, further model 3 ramp up, continued improvement in battery and self-driving technologies, inclusion in S&P 500, etc. will come into picture.

#1-#3 will ensure that Q4 2018 and Q1/Q2 2019 will be comparable or better than Q3. Beyond Q2 2019, tsla long term projects will start to bear fruits, and they will carry tsla to the next stage.

There is no doubt in my mind that tsla will have 32B- 35B revenue and >20% gross margin in 2019, and continue to grow revenue 50% for the next few years.

I need to remind people that during Q2 and Q3 when Bob Lutz and the likes were spewing bankruptcy FUD, luv’s model (q2-q4 2018 financial projections) told the truth with data. The model projects 7B revenue and 333M profit for Q4 which are better than Q3. Believing FUD and ignoring solid data and research at your own peril!

 

[shlokavica22]

Delta is entirely unnecessary when one feels they have a good grasp on specific likely market movement driven by specific market news that will occur at a specific known timepoint, but lower confidence outside that range. In such a case, options that expire shortly after said news have little time value; only (modeled) inherent value matters. Yes, longer-term options will also be affected by this news, but they also have time value affected by a sigma value for which one has low confidence. Why should I invest in variables that I have low confidence in?

One doesn't come instead of the other.
First stage is exactly as you describe it: specific likely market movement driven by specific market news that will occur at a specific known timepoint. That's the starting point and no one argues with that. Afer that stage comes the delta/theta part.

So if you have a starting price, expected price and timeframe, you can compare between strategies based on those assumptions. Btw, i just remembered you mentioned you have IB account- go to the Option Strategy lab and see for yourself.

 

[Menifeer]

Can you share some number of the return you get? When do you sell the weekly and how far away from the current stock price?

I haven't kept track of return percentages.

If an option expires worthless (the typical result), I usually sell the next week's on Monday or Tuesday. I might sell at strikes above or below the current market price, based on what's been happening with the share price.

Based on today's close, if I were doing it now (can't - no dry powder), I'd buy the Jan '21 $250 for about $135 and sell the Nov 30 $340 for about $4.25. On Nov 30, I'd pocket the $4.25 if the share price is below $340 and do it again the next week. If the time value drops to $1, I'd roll it to something for the following week to avoid assignment (the strike would depend on what's happening with the share price).

When the share price gets a bit overheated (like this week), I'd sell at strikes below the current price.

I often have to roll to a later date, but as a seller, each time I do, more money comes to me. Option buyers who roll end up spending more to maintain their position.

This same approach could be used by buying shares and selling weeklies, of course, but Leaps allow control of more shares for the same money.

 

[Oil4AsphaultOnly]

What brokerage lets you do that? I have a Roth but my only choices are index and managed funds.

Pretty much any. I have a Roth IRA with tdameritrade, and they let me choose individual stocks and even options. You need to rollover your account into another brokerage.

 

[elasalle]

.

I haven't kept track of return percentages.

If an option expires worthless (the typical result), I usually sell the next week's on Monday or Tuesday. I might sell at strikes above or below the current market price, based on what's been happening with the share price.

Based on today's close, if I were doing it now (can't - no dry powder), I'd buy the Jan '21 $250 for about $135 and sell the Nov 30 $340 for about $4.25. On Nov 30, I'd pocket the $4.25 if the share price is below $340 and do it again the next week. If the time value drops to $1, I'd roll it to something for the following week to avoid assignment (the strike would depend on what's happening with the share price).

When the share price gets a bit overheated (like this week), I'd sell at strikes below the current price.

I often have to roll to a later date, but as a seller, each time I do, more money comes to me. Option buyers who roll end up spending more to maintain their position.

This same approach could be used by buying shares and selling weeklies, of course, but Leaps allow control of more shares for the same money.

Your initial trade would be break even at 250+135 = 385. ... I would choose a strike at least a bit higher than that.

 

[shlokavica22]

I've been tracking price movement of some options over the last couple of months on a daily basis. The price movement doesn't match delta, so I stopped worrying about delta.

What were the options and what was the stock price at the time?
Options close to strike price/expiration date are much more sensitive to IV. IV impacts greatly delta. The more violently it moves- the more variance in Delta you are going to see.
However the point here is this- you can have 2 positions where one of the deltas is greater than the other. Both deltas will move with certain noise, but one of them will still be bigger and accelerate faster than the other.

 

[shlokavica22]

.


Your initial trade would be break even at 250+135 = 385. ... I would choose a strike at least a bit higher than that.

That's break even at expiration. He will be either assigned long before that, or sold the option before theta starts to bite.

 

[EVNow]

What were the options and what was the stock price at the time?
Options close to strike price/expiration date are much more sensitive to IV. IV impacts greatly delta. The more violently it moves- the more variance in Delta you are going to see.
However the point here is this- you can have 2 positions where one of the deltas is greater than the other. Both deltas will move with certain noise, but one of them will still be bigger and accelerate faster than the other.

I've been tracking J20, J19s since 9/7. From a month or so I've ben tracking J21, March '19 and Dec '21 - 250, 300, 350 & 400 calls. I look at final bid/ask - not the last sale price - since the last sale may not correspond to the final SP.

Also note that delta moves as SP moves - which makes not that useful. Anyway, my objective was to find real leverage, instead of just using deltas.

 

[shlokavica22]

I haven't kept track of return percentages.

If an option expires worthless (the typical result), I usually sell the next week's on Monday or Tuesday. I might sell at strikes above or below the current market price, based on what's been happening with the share price.

Based on today's close, if I were doing it now (can't - no dry powder), I'd buy the Jan '21 $250 for about $135 and sell the Nov 30 $340 for about $4.25. On Nov 30, I'd pocket the $4.25 if the share price is below $340 and do it again the next week. If the time value drops to $1, I'd roll it to something for the following week to avoid assignment (the strike would depend on what's happening with the share price).

When the share price gets a bit overheated (like this week), I'd sell at strikes below the current price.

I often have to roll to a later date, but as a seller, each time I do, more money comes to me. Option buyers who roll end up spending more to maintain their position.

This same approach could be used by buying shares and selling weeklies, of course, but Leaps allow control of more shares for the same money.

That's more than 100% yield. Not bad at all.

 

[Thekiwi]

80B based on what? Lets see if there is any sustainable profit in the next couple of quarters. The profitability now is as good as it gets. There are strong headwinds after Q4.

How do you reach that conclusion? tesla will be producing 9K vehicles a week soon - net income will be much higher at that rate than Q3 was, even with a reduction in ASP.

Leverage baby. Leverage.

 

[shlokavica22]

Also note that delta moves as SP moves - which makes not that useful

That's the beauty of it! Let me introduce you to Gamma. Furthermore- gamma also changes with the price.
And that's exactly how you end up with different outcomes.