Short-Term TSLA Price Movements - 2013

[Discoducky]

Rest assured the rest of the world is still catching up. This article talks about that fact: Tesla Motors Inc (TSLA): Tesla Shares Soar With Search Interest [Google Inc] - Seeking Alpha

 

[c041v]

I find Vancouver to arguably be one of these best places to in the world to live, but it rains a lot in the winter. Sometimes it rains for a very long time. Even though it can be tough to endure the rain, I have no problem waiting for the sun to shine, because when it does, it's so worth it.

For my personal situation, I started making a lot of plays with derivatives. Like others on the board, my overall Q2 results were something of a wash. Had I sold everything a week ago, I would have been much better off. That's frustrating as a novice investor, and more frustrating given the amount of very good info available on TMC that was a near bullseye on earnings. I still have no idea why the market reacted the way it did, but I took away some lessons, although they were a bit painful, I feel a great deal more educated, and that's worth a lot to me right now.

I've been eating up DaveT's megaposts lately. This place has taught me an unbelievable amount about investing.

The hardest thing for me to deal with is the fact that I'm not happier that I'm still way up. I don't know what to make of that.

 

[DaveT]

DaveT thanks for your detailed posts. I agree that this price dip is only a dip and will not change the long term upward trend that we have been experiencing. The one thing that has been concerning me is that the sentiment on TMC, which is usually optimistically bullish, has become kind of bearish. If I recall during the GS dip people were calling it an amazing buying opportunity. When the GS dip happened I bought some calls and Jan 14 leaps, but I didn't take advantage as much as I should have. Come Q2 earnings and I was overly bullish and maybe put my target a little high with some of my call options for that event. I sold my Aug 160's for a good profit, but my other options are about worthless right now. Although it was a wash, it feels as though I lost money. Now for this dip, while I strongly believe it will rebound and test the ATH, I'm being a little more conservative. I bought a few Jan 14 165's on Monday and a few Jan 14 145's today with the thought that maybe the negative sentiment would linger longer than you have envisioned. I was also saving some money for tomorrow, under the false pretense of the lockup expiry, thinking there might be another day of dipping... possibly testing the 133 level as you have mentioned.

I'm wondering for your analysis, how did you go about attaching percentage values to your predictions for such a short period of time? I have a strong belief that we will see Tesla retrace and test new ATH's as more analysts see the strength moving forward and more funds feel it is safe to invest. But I also could see a prolonged period where we are stuck in the 140's until there is a catalyst to break out. Attaching percent values makes it easy to project expected return... if they are correct values. I like the strength the math gives to make decisions, but with this stock it just seems so hard to project down the road. That is why I was hesitant to go with the Sept. calls. Your post gives me renewed confidence because I find your analysis to generally be very well thought out and devoid of emotional skew (something hard to lave at the door in this forum!). Its possible I will put a small amount into Sept calls tomorrow if it dips more, but I'm afraid your post signals the end of the bear raid.

gym7rjm, hey thanks for the feedback. It's much appreciated. Someone else also just PM'ed me w/feedback and it was super helpful as well.

First, I have to admit I'm susceptible to emotional bias based on others' sentiment (ie., TMC board). I try not to let it affect me because I try to focus on the "first principles" of what's really driving price movements. I think it helps in keeping a bit more objective, but it's easy to get swayed in both directions. Another thing that's helpful is when the stock is rising (ie., in the 150s) I was telling myself and my wife that if the stock dips to the low 140s, then the mood/sentiment will change and most people will think it's going down. And when it hits the 130s, people will think it's going to the 120s and the bottom is falling off completely. So, even in the 150s I was trying to keep balanced and recognize how much mood/sentiment can affect a stock's movement. And in the 150s I was thinking if the mood/sentiment changed (ie., with a 10 point drop) how low realistically will it (or can it) drop, and where would be a good buying point and also where would be a great buying point and where would be an incredible buying point. So, thinking through those things prior to a dip or sentiment reversal IMO can be helpful.

Regarding the percentages, it's something fairly subjective and based on my hypothesis that volatility is continuing and not over. Volatility works both ways - up and down. So, if you have drastic moves down, then you can expect as some point a move up. And also if it goes up a lot, at some point there will be a correction/dip. So, I'm currently looking at the 130s as a correction/dip caused for a mood/sentiment change and as an artificially low level. The reasons being are a few. First, I think we had a very good Q2 ER and that solidifies Tesla as a safer investment than pre-Q2 to large cap funds/institutions. I think we'll see more of them come on board in the next few months. Some are citing a lack of short-term catalysts as a reason why they see TSLA getting stuck (ie., in 130s). However, my personal opinion is the real background force for the stock rising is and has been funds/institutions buying in and Model S owners/fans buying as well. I imagine this to continue. Second, I think there's great price support in the 130s, especially after the Q2 ER report. I don't think the general public needs to think that TSLA in the 130s is fairly priced. Rather price support comes the part of the spectrum of people who believe in the company and it's value in the $130s. In other words, I think we have a lot TSLA believers (ie., LT funds/institutions/owners/etc) who will become value shoppers in the low 130s. People are waiting to buy at those levels, especially since we've already reached an ATH of $158.

IMO for TSLA to fall and stay in the 120s is not very likely. Mood/sentiment not only needs to be negative but it has to stay that way in a significant way.

I'm thinking that mood/sentiment can keep negative for a few weeks (maybe a month? also of course barring the economy tanking and Tesla failing to execute), and in that case perhaps the stock does get stuck. But after that I see it continue its uptrend. Too many factors (ie., buyers) that see potential in TSLA.

Now, the question (I'm asking) is what are the probabilities that mood/sentiment stays negative for the next month? Some on the board and elsewhere appear to think it's very likely. Now, I don't want to discount that possibility. But on the other side, we've got a very good Q2 ER and a stellar company with a stellar car that's the talk of town. In that scenario, I can see the mood/sentiment turn back positive very quickly. To me, I look at the "default" mood/sentiment around TSLA should be positive. We'll have times of negativity and pessimism (especially if/when the company fails to execute or economy tanks) but overall Tesla is a company that deserves praise... and I think it'll get it. That's why I look at negative pessimism as more temporary. While we're in the negative sentiment period, it feels like it'll last a very long time. And sometimes it can last longer than expected. But most of the time, I think the negative sentiment will flip sooner than later especially with a company like TSLA.

One of the main reasons why some think it will get stuck in the 130s is because we've had such a big run up so far. So, the basic argument is that TSLA is overvalued at this moment, and needs time to slow down and get new buyers before it rises again. So, I understand the argument, but I think 130s is quite low. That's the level it was at pre-Q2 ER. I think if you make the same argument and say that TSLA consolidates in the 140s or 150s, then I can see that much more likely (vs consolidating in the 130s). I wrote a post over the weekend about the possibility of consolidating in the 140-160 range. I think consolidation is good for the stock long-term, and I actually prefer that. I just don't think it's realistic to expect consolidation in the 130s after a very good Q2 ER. 140-160 range, I can see. 130s seems too low as there's too much buying support there IMO.

I was telling my wife this afternoon, if TSLA reaches 133 then you can buy TSLA at the same price it was pre-Q2 ER. To me that's a steal. Two profitable strong quarters is much better than just one previous one.

When I noted my percentages, I did write about "touching" certain points, meaning those percentage guesses weren't about staying above those numbers. In other words, it could touch $150 and drop much lower. Again, the high percentage probabilities I attribute to that happening is because I think still volatility is real and we'll see fairly wide swings as mood/sentiments shifts in different directions. If you were to ask me what are the probabilities of TSLA reaching and staying above $150 within the next month, I'd probably say maybe 55-70%... but it's just a wild guess. The reason why it's not higher is because even though I think this negative sentiment will pass, I need to give serious consideration that negative sentiment can shift the buying momentum and stick is in a lull of sorts. One example, is today we've had a bearish crossover of the MACD signal line (a technical indicator). It's actually doesn't appear a complete crossover but I tweak the formula a bit and it crosses over on my custom line. This is just saying that the charts are signaling a bit of caution here. In other words, a quick jump to the 150s, though it could happen, will be unlikely unless we have a reverse crossover of the MACD line and that often takes some time (but it could be quick too). The point being is that I don't want to ignore technical indicators here and presume/assume that the stock will return to the 150s overnight. It could happen (as anything could happen) but mood/sentiment isn't great now and it can affect momentum. That's why I'm giving a much lower probability of the stock reaching and staying above 150 vs just touching 150. Just touching 150 I can see as very likely within the next month (I give it 90%) because of volatility (note: just touching 150 doesn't guarantee I'll make money on my trade because if I don't sell at that time and the stock tanks again I might lose the whole amount invested. Knowing when to sell short-term OTM calls isn't easy). But to stay above 150 within the next month, it's going to take momentum to shift. I'm hopeful but not totally confident (thus the 55-70% probability). Again, these are just my guesses but I'm trying to explain my thought process so hopefully they can get refined.

Last note, I got to admit Sept calls have their risk... especially with time value. If things do get stuck in the 130s for the next few weeks (or even 120s), then my option calls are toast. It's just much higher risk-reward ratio than further out calls. Also, would hate you (or anyone) to buy Sept calls just because I said I bought them. I highly recommend everyone to do their own due diligence and come up with their own investment theses and approach.

 

[mershaw2001]

DaveT- One thing to think about with your buying strategy: If it bounces tomorrow, it will have a much higher probability of meeting your 150 call profit point because momentum upward will be maintained. If it breaks through the 135 line and heads to 130, it's possible that the momentum is broken and even though you might be getting a better deal on the calls, since the momentum is broken for the short term (until we generate a new catalyst set to bring the stock up) those calls will never go positive. I think buying some calls was a good idea, but I just don't know if I'd go hogwild buying out of the money calls tomorrow if the momentum is broken.
In fact, if the momentum is broken, you might consider buying spreads that give you time decay and a little upside. Maybe 130/150 spreads, though I haven't priced it out. For the most part, after today and yesterday I'm sitting on weeklies that are 145/155 spreads, and I wish I was more in your strategy than mine. If the whole thing falls apart though and tesla hits 120, I'm only out 200 per contract. (which turns out to be several percent of my portfolio)

 

[DaveT]

DaveT- One thing to think about with your buying strategy: If it bounces tomorrow, it will have a much higher probability of meeting your 150 call profit point because momentum upward will be maintained. If it breaks through the 135 line and heads to 130, it's possible that the momentum is broken and even though you might be getting a better deal on the calls, since the momentum is broken for the short term (until we generate a new catalyst set to bring the stock up) those calls will never go positive. I think buying some calls was a good idea, but I just don't know if I'd go hogwild buying out of the money calls tomorrow if the momentum is broken.
In fact, if the momentum is broken, you might consider buying spreads that give you time decay and a little upside. Maybe 130/150 spreads, though I haven't priced it out. For the most part, after today and yesterday I'm sitting on weeklies that are 145/155 spreads, and I wish I was more in your strategy than mine. If the whole thing falls apart though and tesla hits 120, I'm only out 200 per contract. (which turns out to be several percent of my portfolio)

Thanks, Mershaw. Yeah I was planning on adjusting the call strikes lower on my buys in the case the stock tanks more. I'd probably consider Oct calls if they were available as well to give a larger margin of safety (too bad the next after Sept is Dec and Dec premiums are quite high). And the point regarding the risk of losing momentum the lower we go is well taken.

 

[mershaw2001]

I'm about to turn in for the night, but I thought I'd add one more comment. I don't see this in a bearish trend no matter what happens, at least not now without bad news. I do see a possible consolidation at a price that none of the people on the forum would want, and none are prepared for: 130-145. So we have two scenarios now, upward movement and consolidation and sidewards movement. If you've got upward movement covered by a bunch of calls, you might consider selling 130 puts if it hits your 133 target. Then you'll end up profitable on the trade because you've got two avenues to profitability: your out of the money calls and your sold puts. If you go all in on puts, even the longer time frame, you're just paying time premium that you could be making if there's a longer-than-expected consolidation. Again, just a thought.

 

[JRP3]

TSLA added to MSCI World Index: http://www.streetinsider.com/Corpor...(KORS)+Added+to+MSCI+World+Index/8606843.html

 

[DaveT]

I'm about to turn in for the night, but I thought I'd add one more comment. I don't see this in a bearish trend no matter what happens, at least not now without bad news. I do see a possible consolidation at a price that none of the people on the forum would want, and none are prepared for: 130-145. So we have two scenarios now, upward movement and consolidation and sidewards movement. If you've got upward movement covered by a bunch of calls, you might consider selling 130 puts if it hits your 133 target. Then you'll end up profitable on the trade because you've got two avenues to profitability: your out of the money calls and your sold puts. If you go all in on puts, even the longer time frame, you're just paying time premium that you could be making if there's a longer-than-expected consolidation. Again, just a thought.

Thanks, mershaw. I've been looking into buy puts, which I agree would be much better in terms of less risk. Yet, the buying power required is high. After your post, I'm thinking if it drops significantly more, I might add longer term options for a greater safety of margin (in case I'm wrong with timing but correct that it'll recover).

 

[fjm9898]

Down $2 before open. the slow bleed continues.
and i watch myself go broke on my sept calls.

 

[borat99]

Look at pre-market, I'm convinced that this week is TSLA Tuesday week. :crying: I hope I'm wrong.

 

[Jonathan Hewitt]

Geesh, it's so tempting to buy some short term calls even though I told myself I wouldn't do that anymore. Or maybe I'll buy a couple hundred shares on margin...sell some covered calls for a little bit of downside protection.

- - - Updated - - -

Didn't pull the trigger quick enough, totally missed the $135 low there, haha

 

[InTheShadows]

Is this "the bounce" or will it be another falling knife day?

 

[Jonathan Hewitt]

Is this "the bounce" or will it be another falling knife day?

Looks like it's bouncing. I bought 2 Sept calls and 200 shares at ~$138. Will probably sell 2 covered calls here shortly at a $150 strike

 

[aznt1217]

Context guys... context. The overall market is down a ton. Tesla just magnifies the swings. I think we are in an odd drought period. It's a good time to buy for a bunch of people though.

 

[AlMc]

Context guys... context. The overall market is down a ton. Tesla just magnifies the swings. I think we are in an odd drought period. It's a good time to buy for a bunch of people though.

+1. I think we will see pre Q2 earnings report of $130-134 today. Tomorrow it will settle to just under $140. Short term after that will see 10-14 days bounce around 135-142 then slow push upward. I think the only way it goes up quicker is some sort of very positive announcement from Elon or some analysts increasing their targets. I don't see either of those happening in the short term.

 

[uselesslogin]

Context guys... context. The overall market is down a ton. Tesla just magnifies the swings. I think we are in an odd drought period. It's a good time to buy for a bunch of people though.

Yeah always good to compare to the index. TSLA is holding up quite nicely so far Nasdaq is down 1.5%.

 

[emupilot]

Looks like it's bouncing. I bought 2 Sept calls and 200 shares at ~$138. Will probably sell 2 covered calls here shortly at a $150 strike

I hit the low point 5 minutes after opening and bought a Sep 120 call - hopefully the bounce will last so I can score a small victory amid the carnage that is the rest of my Sep calls!

 

[InTheShadows]

Dipped my toe in the options water this am. Bought a sept 150 and 160 and a jan 15 170. No fees at optionshouse fo 60 days so there won't be any fees on selling the sept ones.

 

[fjm9898]

market is getting slaughtered today.

 

[Jonathan Hewitt]

If the stock does go down from here I still have AUG $135 puts I bought pre earnings report. Those will cushion any fall today/tomorrow if it breaks through. I felt pretty confident buying at ~138, especially once I wrote Sep $150 covered calls.