TSLA Trading Strategies

[FluxCap]

Yes, but timidly. I'm a little puzzled why those on here that are pretty sure the deal is going through aren't considering picking up a modest amount of SCTY nov or dec calls?

Same. I am talking with friends about exactly this.

 

[Turing]

...except that you don't get standard TSLA options. This is important to remember. 1 SCTY contract (100 shares SCTY deliverable) becomes 1 TSLA1 contract (11 shares TSLA deliverable). Basically you end up with mini-options. They can be very thinly traded, so don't expect to be able to get out of your positions before expiration without paying a lot to the market makers.

Couldn't you just overcome this issue by converting and then selling the shares?

 

[SuryaDham]

Couldn't you just overcome this issue by converting and then selling the shares?

Only if they are very deep in the money (like almost 50%), as any remaining time-value will be lost.

 

[kenliles]

Yes, but timidly. I'm a little puzzled why those on here that are pretty sure the deal is going through aren't considering picking up a modest amount of SCTY nov or dec calls?

It's a timing issue for me- I'm not confident on the timing of the eventual merger- So making up for the short term leveraged play with significant stock buys- I'm typically long term only and the discount on long term hold of TSLA via proxy is sweet for my taste

 

[SuryaDham]

Same. I am talking with friends about exactly this.

I'm doing exactly that. My reasoning is the following: The Jan 17 SCTY calls at the money should roughly double if the merger goes through (provided TSLA stays where it is and the decision will be not too far into the future, in which case the calls would lose much of their time value).
Risks are:
- If merger does not go through, calls are likely toast
- if the merger is delayed significantly the calls might be toast as well or lose most of their time value
- if TSLA tanks calls might be toast
- there might be others that I don't have on my radar...?

chances are:
- if merger goes through within the next very few weeks it's a quick 100% return
- if TSLA increases (imo in the cards, provided everything we know) the return might be higher than 100%

I think this trade is risky, but for my risk profile and view the chances seem to outweigh the risks. That's why I'm in. I am not betting the farm, but more than small change....
I'm using a combination of slightly out of the money Jan 16 and Jan 17 calls (in the money if converted to TSLA options at current valuation), to leave room for the possibility that the deal might be delayed significantly.

 

[Turing]

It's a timing issue for me- I'm not confident on the timing of the eventual merger- So making up for the short term leveraged play with significant stock buys- I'm typically long term only and the discount on long term hold of TSLA via proxy is sweet for my taste

Are you concerned about the vote being pushed into next year? Because i was under the impression that the vote will likely happen and be released in q4, but the actual execution of the merger could be pushed into early next year. For the purpose of the calls, it seems like as soon as vote details are released, the arbitrage has to disappear at this point?

 

[Turing]

I'm doing exactly that. My reasoning is the following: The Jan 17 SCTY calls at the money should roughly double if the merger goes through (provided TSLA stays where it is and the decision will be not too far into the future, in which case the calls would lose much of their time value).
Risks are:
- If merger does not go through, calls are likely toast
- if the merger is delayed significantly the calls might be toast as well or lose most of their time value
- if TSLA tanks calls might be toast
- there might be others that I don't have on my radar...?

chances are:
- if merger goes through within the next very few weeks it's a quick 100% return
- if TSLA increases (imo in the cards, provided everything we know) the return might be higher than 100%

I think this trade is risky, but for my risk profile and view the chances seem to outweigh the risks. That's why I'm in. I am not betting the farm, but more than small change....
I'm using a combination of slightly out of the money Jan 16 and Jan 17 calls (in the money if converted to TSLA options at current valuation), to leave room for the possibility that the deal might be delayed significantly.

It seems like playing jan17 calls might almost be riskier on solarcity relative to nov or dec. You are paying for additional timevalue and it might just be best to play the good q3 results > increased institional confidence > positive merger vote release > stock bounces and arb closes. Close position while your ahead... don't have to worry about Q4 results end of year guidance, holiday breaks, shorts regrouping around debt FUD theme or whatever when initial q3 bounce euphoria wears off, ect. I should add that i'm not betting the farm on this but it could be a decent risk/reward modest play.

 

[Turing]

I also find it hard to believe that if Tesla has a record breaking blow out non gaap profitable q3 (maybe even gaap profitable), that wavering institutions would then slap Elon down on the merger vote. Blowing out q3 would secure any fence sitting institutional investors imo.

 

[kenliles]

Are you concerned about the vote being pushed into next year? Because i was under the impression that the vote will likely happen and be released in q4, but the actual execution of the merger could be pushed into early next year. For the purpose of the calls, it seems like as soon as vote details are released, the arbitrage has to disappear at this point?

yeah- a combination of delay risk of vote AND the delay in the anticipation of merger success (known by the vote, but likely presumed before that). Even if that occurs in time for the option expiration, it's shrinking time value accelerates and the expiration date is too close to when the market might price the arbitrage out. That said- I agree TSLA will likely drag SCTY upward during the period.

I think if I were to make a risk play on this event, I would push the SCTY option out just a bit- say March. I know that's less leverage against a judgment the extra time is worth the higher price- but that's the judgement I would make currently for this particularly play.

Also remember coupled into the risk matrix is an election with massive market implications (one way or the other). between now and then the expected result will be pricing into the value of those options. my 2c

 

[MikeC]

One good thing about the lawsuits is that maybe this is the "flak" that Elon was referring to in his 'worst week ever' comment. Meaning that he wasn't referring to insititutional investors getting cold feet, as DaveT suggested.

 

[MitchJi]

Same. I am talking with friends about exactly this.

It seems to me that a straddle is pretty close to risk free. If the merger goes through your gain should be sufficient to profit on the entire trade.

OTOH if it doesn't go through SCTY should decline enough to profit from your puts on the entire trade.

My concern is that if the merger does go through, can you sell Nov-Mar green SCTY calls, if you don't have the funds to buy TSLA shares?

 

[SuryaDham]

It seems to me that a straddle is pretty close to risk free. If the merger goes through your gain should be sufficient to profit on the entire trade.

I'm not so sure about that. Puts in SCTY are pretty expensive.
Even with a modest strangle (Jan17 18 call and Jan17 16put) I don't see an easy way to make money...

OTOH if it doesn't go through SCTY should decline enough to profit from your puts on the entire trade.

I agree. But if it DOES go through the proceeds from the call will probably not be enought to pay for the then worthless put (provided TSLA stays where it is)

My concern is that if the merger does go through, can you sell Nov-Mar green SCTY calls, if you don't have the funds to buy TSLA shares?

Probably not the most liquid options....but you can always (roughly - depending on the exact amount) offset it with standard-options.

 

[SuryaDham]

It seems like playing jan17 calls might almost be riskier on solarcity relative to nov or dec. You are paying for additional timevalue and it might just be best to play the good q3 results > increased institional confidence > positive merger vote release > stock bounces and arb closes. Close position while your ahead... don't have to worry about Q4 results end of year guidance, holiday breaks, shorts regrouping around debt FUD theme or whatever when initial q3 bounce euphoria wears off, ect. I should add that i'm not betting the farm on this but it could be a decent risk/reward modest play.

Appreciate your insights! I think it's highly likely that the deal goes through, but I'm not so confident in the timing, so I wouldn't bet on the positive merger vote release too soon . The 4 court cases seem to further delay everything. The uncertainty could stay in the market for even some weeks, withering away the time value of my calls. That's why I chose Jan 17 and even some Jan 18. If it happened that it becomes clear that the deal does NOT go through, then I lost time value unnecessarily, and in that case your strategy would have been better. If the deal is delayed by a few weeks, and the decision is moved to november or december, I think I'm better of with the Jan 17 calls.
It will be very interesting to see how it all plays out exactly...

 

[MitchJi]

It seems like playing jan17 calls might almost be riskier on solarcity relative to nov or dec. You are paying for additional timevalue and it might just be best to play the good q3 results > increased institional confidence > positive merger vote release > stock bounces and arb closes. Close position while your ahead... don't have to worry about Q4 results end of year guidance, holiday breaks, shorts regrouping around debt FUD theme or whatever when initial q3 bounce euphoria wears off, ect. I should add that i'm not betting the farm on this but it could be a decent risk/reward modest play.

You can sell (close) the Mar options in November, December or January if necessary?

Probably not the most liquid options....but you can always (roughly - depending on the exact amount) offset it with standard-options.

Would you please explain what you mean?

 

[SuryaDham]

You can sell (close) the Mar options in November, December or January if necessary?


Would you please explain what you mean?

sure. Let's say sameone buys 9 SCTY March 20 calls. After the merger they will be converted to odd March 181.82 TSLA calls with an odd multiplier of 11 (instead of the 100 for standard-options).
So these 9 options entitle this person to buy 9 * 11 TSLA options for 181.82 each = 99 Options.
If against those 9 contracts they sell one standard TSLA march 180 option and buy 1 TSLA share, their position is almost flat (except 99 x USD 1,82 that remain as the difference between the strike prices of the two option contracts).
They can then just wait for the two options-position to cancel each other out in march 2017, and also sell the 1 Share again.
Even if someone only has 1 of those odd option contracts which is deep in the money by then. Instead of paying a market maker a huge spread they can simply sell 11 shares of TSLA short and thus are flat.

 

[SuryaDham]

So these 9 options entitle this person to buy 9 * 11 TSLA options for 181.82 each = 99 Options.

This should read:
So these 9 options entitle this person to buy 9 * 11 TSLA common stock for 181.82 each = 99 shares.

 

[MitchJi]

sure. Let's say sameone buys 9 SCTY March 20 calls. After the merger they will be converted to odd March 181.82 TSLA calls with an odd multiplier of 11 (instead of the 100 for standard-options).
So these 9 options entitle this person to buy 9 * 11 TSLA options for 181.82 each = 99 Options.

Immediately after the vote results are announced the SCTY SP should rise to 0.11 of TSLA? How long do we have after that before the SCTY options become the weird mixture? I think someone said that it would take about a month after the vote results are known to merge the companies. Does it take that long too switch the options?


Thanks!

 

[Turing]

You can sell (close) the Mar options in November, December or January if necessary?

In a scenario where the arb closes in a positive way in nov or dec, do you think the spread on Mar options will be fair enough to make closing it out reasonable at that point?

 

[SuryaDham]

Immediately after the vote results are announced the SCTY SP should rise to 0.11 of TSLA?

If the market doesn't see any other risk beside the vote, yes, then it should close that spread. BUT if there are still remaining uncertainties like lawsuits, SEC probings etc. then a spread will remain.

How long do we have after that before the SCTY options become the weird mixture? I think someone said that it would take about a month after the vote results are known to merge the companies. Does it take that long too switch the options?
Thanks!

The options should switch around the same time when SCTY stock ceases to exist (being merged into TSLA). If everything goes according to plan, this could happen towards the end of the year.
Or not...

 

[uselesslogin]

Whelp I have short term bets in place now - basically December calls. It seems to me like it is a natural up-cycle then a strong delivery report and even just non-GAAP profitability could move it up from here. But I am really thinking it looks like they are getting tons of cars that were given October delivery estimates out this quarter which means GAAP profitability is a real strong possibility.

I'm not doing SCTY only because I don't really understand the chances of the merger happening and I would hate to watch GAAP profitability happen and then end up with nothing because the merger falls through.