2017 Investor Roundtable: TSLA Market Action

[bdy0627]

That's not true,! You are missing the fact that you can be forced to sell your options but you can hold your shares as long as you need to.

And by following that strategy you lose most of the potential benefits of options. I believe that a better strategy is to avoid LEAPS options until you have excellent reasons to be extremely confident that the SP will increase a lot a substantial amount of time before expiration. I believe that now (between now and mid 2019) is clearly one of those times.

I believe that being all in on LEAPS all of the time is too risky but when it isn't a risky time that strategy is too conservative. Very high risk with medium rewards.

In actuality, I would always sell the options regardless whether they are up or down. It's just a question of when and what i am doing with the proceeds. Dynamically adjusting your leverage depending upon the stock movement, leveraging up when the stock takes a dip, and down when it rises, can improve your risk/reward outlook. Assuming your fundamental outlook on Tesla doesn't change, it certainly makes sense to leverage up on a dip. Since we are not at a dip but are near an ATH, yet expecting explosive growth, it makes sense to be in LEAPs but not so aggressive or leveraged that you can't leverage up if we were to drop back into the $200s. This is why I believe it is not overly risky to be in DITM LEAPs now but I do think it is relatively risky to be in OTM LEAPs, certainly at 100%. The key to me is simply to be able to reasonably increase your leverage in LEAPs via strike price or expiration date should the stock go down.

Using the options calculator here is an example investing $100k right now:
Buy 11 J19 $300 (at $91.5 each) or
Buy 23 J19 $400 (at $44.2 each)

If the stock is at $430 on 2/1/18:
Your J19 $300s are now worth $159k (at $145.2 each)
Your J19 $400s are now worth $177k (at $78 each)

However, if instead the stock is at $280 on 2/1/18:
Your J19 $300s are now worth $39k (at $35.1 each)
Your J19 $400s are now worth $25k (at $10.9 each)
At this point, if you owned the J19 $300s, you could just hold on or you have an opportunity to sell them and use the money to buy 35 J19 $400s since you are even more confident the stock will be going up from there. Be greedy when others are fearful, right? Again this absolutely assumes no fundamental change in the company outlook.

Let's say you held on and the stock then rises to $430 by 5/8/18:
Your J19 $300s are now worth $153k (at $139.9 each)
Your J19 $400s are now worth $156k (at $69.0 each)

If instead you had sold the J19 $300s and bought J19 $400s while the stock was at $280 on 2/1/18, here is where you would be if the stock then rose to $430 by 5/8/18:
35 J19 $400s at ($69.0 each) = $241,500

If the stock continued to drop from $280 on 2/1/18, I would be looking to leverage up again when I felt it was at the bottom. It's impossible to perfectly nail the timing but you don't have to be perfect as long as it eventually goes up. You do have to be right on your assessment of the company. If it hasn't gone up before the end of 2018, then you would need to look at J20s at an aggressive strike price.
The bottom line is that the best risk/reward ratio comes after a dip rather than near an ATH. Best to be cautious with OTM calls near an ATH.

 

[bdy0627]

Sorry for that long post here. It probably belongs in the trading thread but I'm not sure how to move it.

 

[Starno]

All the talk here of $1T market cap, on the short term thread no doubt. This is no different than those forecasting TSLA to zero. For 3Q17, TSLA was the worst performing auto (I know, Tesla Motors is more than that) stock by a wide margin. Agree with DaveT that this thread is getting too high in the clouds at times. TSLA has gained 97% since Nov.24/16 in anticipation of the M3. Perhaps we stay in the $350/sh range until the M3 clearly shows results of mass production which is unlikely to be confirmed until after 1Q18 quarterly meeting. Semi, TE, MY, Truck are all up and coming but IMHO will not add significantly to the SP until results are proven, as it is still all about the M3. I'm super long Tesla Motors, not only for potential personal gain, but for the benefit of Mother Earth and humanity.
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I think thinking about the 1T market cap is the wrong way.

I just think about the fundamental : Will Tesla be able to reach 50B net income ? (which at a reasonable 20 PER would give a 1T valuation).

For me the answer is a clear yes. But obviously, you're free to think that 50B is too high.

 

[MitchJi]

You are obviously a grown man and should not take investment advice from me, or anyone else anonymously on the internet, but I still think going all in on 2020 leaps would be a bad move. On the other hand I think they will likely be a good investment, and will probably buy some myself, I just think they are way too risky to go all in on. Before you go ahead with this stratagem I would encourage you to go back and review the "TSLA trading strategies" thread from Oct-Nov 2015. I don't know how to link it here, but I will copy and paste a few choice quotes.
1.
MitchJi 10/30/2015 "Thanks for your post! I would never have considered J18s @$490-$500 without your post. You helped me formulate a plan. Hold our Mar 16 230's and 240's and cash, until it looks like a good time to load up on J18 490-500's in Nov-Jan. I am very enthusiastic about this strategy."

MitchJi 10/30/2015 "I think we are close to the bottom, so I don't think it's a good time to buy puts. I think it now is a good time for a long-term position with much more leverage. It's like counting cards, the further the odds are in your favor, the more chips it makes sense to put on the table."

Reading a little farther down the thread it looks like you didn't follow this strategy, but you seemed pretty sure of yourself at the time. Could you imagine the carnage if you had gone all in in November 2015 on Jan 18 $500 calls? This was during a period when the greater stock market has had a huge bullish run, and Tesla has had it's challenges, but overall has performed extremely well as a company. Think of the confidence you would have had, if you could see just a peak of the future in late 2015 and knew for sure that in late 2017 Tesla would be selling 100k model S+X, and was sitting on 500,000 Model 3 orders, which was just going into production with rave initial reviews, and the S&P 500 would be 23% higher? You would have made that leveraged bet for sure, and you still would have most likely lost almost every penny you had.

I'm not sure if you intentionally cherry picked my posts in an effort to distort my beliefs or not, but if that was your intention you did an excellent job!

1. I initially thought that buoying far OTM LEAPS made sense because I know that calls don't need to be ITM to make money and I believed that by buying LEAPS even if they were not in the money there was a large time window to make money. After a little bit of study I realized and have posted several (many?) times that when you pay for a higher strike price you gain a higher dealta (a two edged sword), less risk due to the lower price needed to be ITM and more time to make money at a lower price. I have said repeatedly that there are two ways to not pay for time value, Buying DITM and way OTM options. When I realized that I not only decided that they were too risky for most purposes but I also recommended that people avoid buying them, for exactly that reason on several occasions.

You also seem to be basing your criticism on the fact that you think that I intended to go all in on that strategy and to hold those options until expiration which I believe is normally a foolish decision.

I believe that the card counting analogy is a good basis for a strategy. The right time to use that to purchase way OTM Calls is if you are highly confident that a squeeze is coming. Unfortunately I don't believe that is going to happen. I believe that now is an appropriate time to buy J19's up to about $380. If that's to wild for you then you can substitute $350's, or even $300's.

You can read more of my thinking about buying options in this PDF:
J19LEAPS-BuyInJan2017.pdf

One relevant quote:
IMO the main consideration to buy LEAPS's should have very little to do with understanding options. Mainly you need to be extremely confident that at least 1-10 month's (6-10 is better) before the January 2019 expiration date that the SP will increase enough that you will make a substantial profit. I believe that now is an excellent time for the following reason:

I strongly believe that by November 2017-September 2018 Tesla will be profitably producing M3's at a rate of at least 7k per week. When that happens I believe that the SP will rise to at least $300.

That turned out to be an extremely conservative recommendation. When I update the PDF I intend to change the $300 to $400 and recommend J20 LEAPS instead of J19's which I believe will be turn out to be equally conservative. That is something that I actually recommend rather than something that I initially felt enthusiastic about before doing due diligence.

There's also a section where I outlined a process for determining the strike price with a number that the reader believes is safe.

 

[DaveT]

Ok so first let's make things clear :

Any company that today is worth more than 400B, and grow at an average market rate of just 10% a year will be worth more than 1T in 10 years. This concern already about 8 company as of today.

Now, even if 0 company reach the level of those companies, and just half of those companies succeed at achieving a return of 10% a year for 10 years.
It means 4 companies will be worth more than 1T in 10 years.

__________

I don't know what are the chances of Tesla being worth more than 1T in 10 years.

I know that having a net income of 50B with a 20 PE ratio is largely achievable for Tesla.

If you don’t have any idea on the % probability you think TSLA will be 1T+ market cap company in 10 years, then you shouldn’t be going around saying that anything under 1T is a massive buy. Also, you shouldn’t even be going around saying $200B is a massive buy right now either. Maybe you need to figure out your own personal forecasts before spamming this thread with spam.

 

[Chickenlittle]

If you don’t have any idea on the % probability you think TSLA will be 1T+ market cap company in 10 years, then you shouldn’t be going around saying that anything under 1T is a massive buy. Also, you shouldn’t even be going around saying $200B is a massive buy right now either. Maybe you need to figure out your own personal forecasts before spamming this thread with spam.

By you continuing to complain about it you are bringing continued attention to it. You have made your comment and are on the record. Time to move on. No one is silly enough to pay 995 for a share tomorrow. You are not saving someone from such an error

 

[DaveT]

By you continuing to complain about it you are bringing continued attention to it. You have made your comment and are on the record. Time to move on. No one is silly enough to pay 995 for a share tomorrow. You are not saving someone from such an error

Maybe more people ought to complain and confront shallow thinking here. I think there’s too much tolerance of noise and senseless cheerleading on this thread/site. And I’m very invested in keeping the quality high here, enough so that I’ve spent a lot of time on my own thread here building content which I could have easily done somewhere else.

 

[Starno]

If you don’t have any idea on the % probability you think TSLA will be 1T+ market cap company in 10 years, then you shouldn’t be going around saying that anything under 1T is a massive buy. Also, you shouldn’t even be going around saying $200B is a massive buy right now either. Maybe you need to figure out your own personal forecasts before spamming this thread with spam.

Ok I agree I made a mistake of words by saying " it's a massive buy ", because everyone has different expectations from the market etc.

Now, if you want an exact % of chance of Tesla going to 1T in the next 10 years, I will say it's 75%. 99% in the next 15.

 

[Starno]

Maybe more people ought to complain and confront shallow thinking here. I think there’s too much tolerance of noise and senseless cheerleading on this thread/site. And I’m very invested in keeping the quality high here, enough so that I’ve spent a lot of time on my own thread here building content which I could have easily done somewhere else.

" I'm very interested in keeping the quality high here "
" I’ve spent a lot of time on my own thread here building content which I could have easily done somewhere else. ".

You're a bit presumptuous.... Like if you had the monopoly of knowledge ...
------

But I think I might understand why : you're probably playing the options game. In this case target date and target price are extremely important for you.

I'm personally staying away from anything other than common stocks. So I don't really care about " when and how much " . As long as the company is doing well, I'm happy. The SP will reflect the company's worth at some point in time.

 

[ValueAnalyst]

Let's please refocus the discussion to the purpose of this thread: Market Action.

 

[MitchJi]

Which is why I don't understand how anyone could be foolish enough to believe that going all in on 2020 LEAPS with a strike price under $400 could be a mistake.

I've figured out a couple of scenarios. I believe that Tesla and 50 other companies that manufacture batteries are working on the Goodenough batteries. If someone else like LG or Samsung for example (UT said that more than 50 companies have licensed the technology) announces that they are close to solving the anode and are planning to go into production in 12-18 months and plan to sell packs for ~$70-$95 per kWh. At those prices every oem would plan to jump into EV's in a major way. The threat of competition. I'm not worried about competition but the threat would drive down the SP.

OTOH if Tesla announces, or word leaks out that they are switching to the massively improved cells that would canabalize current sales. I believe that they will try to keep it secret until they have sufficient production capacity for all,of their existing production vehicles. So keep an eye out for unexplained bumps in Gigafactory production. If we can figure out in advance that that's going to happen that would be excellent time to buy high strike LEAPS IMO, not a squeeze but a relatively rapid increase)

In actuality, I would always sell the options regardless whether they are up or down. It's just a question of when and what i am doing with the proceeds. Dynamically adjusting your leverage depending upon the stock movement, leveraging up when the stock takes a dip, and down when it rises, can improve your risk/reward outlook. Assuming your fundamental outlook on Tesla doesn't change, it certainly makes sense to leverage up on a dip. Since we are not at a dip but are near an ATH, yet expecting explosive growth, it makes sense to be in LEAPs but not so aggressive or leveraged that you can't leverage up if we were to drop back into the $200s. This is why I believe it is not overly risky to be in DITM LEAPs now but I do think it is relatively risky to be in OTM LEAPs, certainly at 100%. The key to me is simply to be able to reasonably increase your leverage in LEAPs via strike price or expiration date should the stock go down.

You can not count on being able to sell your LEAPS without losing a substantial portion of what you paid for them.

You realize that you are talking about short term trading with your LEAPS? I prefer to do short term trades using cheap short term lottery ticket options rather than to risk a substantial portion of our portfolio.

But if you want to do that the SP or price of the options isn't the important factor when rolling options. It's the overall leverage that determines if you are better off rolling when the SP is low or high. I suspect that you are not doing that calculation. That will show you which option will increase in price the most as the SP increases.

I normally increase my leverage when the SP is high because that's normally a better time to do it, and it's when I have increased confidence that the SP will be higher before the options expire. For example when the SP was $180 I bought J19 $240's because I was confident that the SP would increase to at least $300 when the M3 is being produced in quantity. When the SP got to about $360 I rolled 14 of those to about 35 (!) $380's because at that point I was confident that $400 will happen. Of course I would have been better off buying the J19 $240's initially but I am not smart enough to use discounted cash flows to precisely determine the short or medium term TSLA SP.

 

[DaveT]

Let's please refocus the discussion to the purpose of this thread: Market Action.

Actually, @ValueAnalyst I think you’re a big part of the problem. You really need to post less in this thread. There’s way too much overposting of noise from people like you. Seriously, put everything you want to say into one post a day and leave it at that. Multiple people have confronted you and you’ve promised multiple times to post less, but nothing has changed. If you want to post more, make your own thread and bring your noise there and stop ruining the general threads.

 

[Snapdragon III]

Ok I agree I made a mistake of words by saying " it's a massive buy ", because everyone has different expectations from the market etc.

Now, if you want an exact % of chance of Tesla going to 1T in the next 10 years, I will say it's 75%. 99% in the next 15.

WOW! that is way different than my best guess! I don't have any complicated model or anything but shooting from the hip I would optimistically put the chances of 1T in 10 years at around 5% and think even that is probably mostly my wishful thinking. You have to remember that you are predicting an outcome that no company in the history of the world has ever accomplished as of now. Fortunately for us, Tesla could still be a great investment even if it doesn't get to 1T in the next 10 years. Also, I can not think of any other 60B market cap companies that I think have a 5% chance of hitting 1T in the next 10 years.

I hope you are right, and I am dead wrong.

 

[RobStark]

If someone else like LG or Samsung for example (UT said that more than 50 companies have licensed the technology) announces that they are close to solving the anode and are planning to go into production in 12-18 months and plan to sell packs for ~$70-$95 per kWh.

Lab success to mass production will take much longer than 18 months.

Neither battery maker nor automaker will wager their reputation on a new battery cell that doesn't have exhaustive long term testing validating the new chemistry and manufacturing process.

5 years would be very aggressive.

 

[DaveT]

If anybody wants to engage in the overposting of senseless cheerleading or FUD, you’re not welcome on this site. Please go to StockTwits and do it over there. @Starno @ValueAnalyst @mmd @myusername

Personally, I think people have been trying to ignore this problem for too long. When we ignore it it just gets worse because there’s nobody confronting senseless noise on this thread and overposters continue to overpost and attract more overposters.

Folks, we need to stop ignoring this. Just putting a bunch of people on your ignore list, only temporarily postpones the problem and doesn’t really solve it. Also the mods aren’t doing anything about it, so it’s up to us.

 

[MitchJi]

" I'm very interested in keeping the quality high here"

But I think I might understand why : you're probably playing the options game. In this case target date and target price are extremely important for you.

I'm personally staying away from anything other than common stocks. So I don't really care about " when and how much " . As long as the company is doing well, I'm happy. The SP will reflect the company's worth at some point in time.

The thread is supposed to be about the trading TSLA (short term prospects for TSLA). I think that it's a hopeless cause, but posting useless wild and irrelevant statements isn't helpful.

 

[Intl Professor]

I have reported this problem and hope there will be action soon which may be upsetting to some. Remember, I resigned as a demi-mod after my pacemaker implant.

 

[Snapdragon III]

If anybody wants to engage in the overposting of senseless cheerleading or FUD, you’re not welcome on this site. Please go to StockTwits and do it over there. @Starno @ValueAnalyst @mmd @myusername

Personally, I think people have been trying to ignore this problem for too long. When we ignore it it just gets worse because there’s nobody confronting senseless noise on this thread and overposters continue to overpost and attract more overposters.

Folks, we need to stop ignoring this. Just putting a bunch of people on your ignore list, only temporarily postpones the problem and doesn’t really solve it. Also the mods aren’t doing anything about it, so it’s up to us.

I disagree. If you start finger pointing at each other on who's posts are worthy enough to be here, and who's aren't, less and less people will want to stick their neck out to be judged, and the frequency of anyone posting will dry up and eventually die. I enjoy the banter here, even though lots of it is nonsense. If there was way less posting, I would come back to check on it way less, and contribute less myself, (Which would probably be fine by DaveT).

I am not a programer, and have no idea how this would be implemented, but I do think this forum could be improved if there was a supper easy filter, where you could for instance click some buttons to show only posts that have 2+ informative ratings and 2+likes. It would make it much easier to catch up on the good stuff, without having to wade through tons of nonsense, if you have not been following the forum in real time for a few days.

 

[D-egg-O]

click some buttons to show only posts that have 2+ informative ratings and 2+likes. It would make it much easier to catch up on the good stuff, without having to wade through tons of nonsense, if you have not been following the forum in real time for a few days.

I already do this. I just keep scrolling until I see a high number of informative, likes, loves, etc. Especially in the general thread.

 

[Intl Professor]

I am not a programer, and have no idea how this would be implemented, but I do think this forum could be improved if there was a supper easy filter, where you could for instance click some buttons to show only posts that have 2+ informative ratings and 2+likes. It would make it much easier to catch up on the good stuff, without having to wade through tons of nonsense, if you have not been following the forum in real time for a few days.

I suggested a long time ago requiring a title for the post, as we are to do with pms, would ease the cognitive anxiety of some here. But nothing came of the idea.