Having a nuanced view on Tesla

trade idea for both $TSLA haves and have-nots

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Not black and white

Tesla and Bitcoin online communities share a lot of such phenomenon: that they are so religious about Elon Musk or Satoshi Nakamoto; and they are voraciously aggressive in fighting their “evils”, be it evil fiat money and evil old oil, with almost blind ignorance of why the evils became evils, and how the new gods they believe in actually tackle and solve the real issues.

These subjects in reality are almost never black and white.

The ability to have an open mind and nuanced view is important. I'm a fan of this particular interview on how to separate different matters and to build a nuanced view on Tesla.

To have a intellectually honest discuss about Tesla, one needs to openly look at below “conflicts”:

Tesla's pursuit clean and solar energy solutions is good virtue

vs.

Traditional energy companies also have been putting tremendous amounts of capital and effort in the same sector.

Elon has done a good job in promoting himself as an engineer & scientist and such ideology has been attracting brilliant engineers and encouraging younger generations 

vs.

It is also true nothing fundamentally new has been done in science breakthroughs by Tesla, nor does Elon Musk have said/created anything super intelligent from a scientific point of view.

Elon like Steve Jobs has been extremely smart in his unique, smart and very cost-efficient way marketing and promoting himself and his companies

vs.

Sometimes such promotion is on the edge of crossing the lines of share price manipulation, dishonesty in promising unfeasible technology which has caused very unfortunate accidents.

Tesla is doing well for humanity by setting vision and ambitions about achieving a better future

vs. 

Taking advantage of the combination of: [ receiving government incentives + creative accounting + overpromising highly risky projects + funding through public often retail investors money ] (vs. Bezos also been doing rockets projects but out of his own pocket)

Quickly about bitcoin

Not for the purpose of any Tesla trade idea, i believe any rationale or sensible bitcoin discussion should similarly admit and address below conflicts:

Amount of talents it attracted

vs.

Amount of gross behaviours for pure get-rich-quick purpose; The potential it does become a major alternative commodity assets (therefore the upside) vs. its volatile and speculative nature;

The enormous enlightenment

vs.

Very little utility being a technology itself & purely relying on the store of value narrative it changed to a few years ago; This could possibly hurt its network effect in the future, which then challenges the entire limited supply consensus.

It is a much better version of gold for certain EM people where extremely irresponsible money system exists

vs.

Most DM people buying it through passport-verified exchange account & the desire for mass institutional acceptance couldn’t be more opposite to the original decentralisation pursuit.

Cost of speculation vs. protection

Back to Tesla, ironically, having open minded intellectual honesty would easily make one observe and conclude that, most people don't have it ! It is very much true in most cases that the debate about $TSLA is absolutely a religious fight. Tesla fans almost blindly think the company will take over the world and in Elon we believe, no matter what. This makes most fundamental discussion about Tesla valuation on social platforms a waste of time. 

Even when we do look at fundamental analysis about Tesla, many bullish cases are more like imaginations rather than educated predictions, meaning the financial valuation is mixed with some most aggressive assumption of perfect execution, and simply ignoring the competitiveness of the market and the competence of other talents from other great companies. (subscribe to make sure you don’t miss when we talk about who could the most surprising disruptors to $TSLA; not one company, but a handful of them combined)

Bear that in mind, let's now take a look at the option structure of $TSLA over time.

Back in 2019 before the share price took off, $TSLA call option implied vol had been trading consistently lower than its put option implied vol, indicating that the market has more concerns about downside risk than upside. The difference between call & put option implied vols has converged into 2020 and stays that way, regardless the absolute level of the implied vol, meaning the market now thinks one should pay just as much to speculate the upside as protecting the downside. 

This, combined with the religious psychology from $TSLA supporters + its valuation, creates some interesting ideas for both tesla haves and have-nots.

Suggested trades


For tesla have-nots, it appears one can take the advantage of the disconnection between the still expensive put option of TSLA vs. the religious hodl psychology of $TSLA supporters. We believe any sell-off >15% would be seen as a rare and decent buy-the-dip opportunity for $TSLA bulls and quickly reverts back. The current sentiment especially the willingness to hold this stock for a longer term seems very strong.

This makes selling $TSLA puts a compelling strategy to 1) collect low risk premium 2) opportunistically buy-the-dip.

As at the publishing date 07-Jan-2021, the $TSLA 02-19-21 P600 closed at $16.40, with $TSLA share price $755. We suggest selling this or similar put options. This means for every option, you get paid $1640 to wait till 19-Feb-21, and potentially buy 100 shares of $TSLA if it falls down to $600 or below, which is a ~ 20% sell-off in a little over a month.

For more aggressive readers, you can increase the strike level for more income. For example, selling  $TSLA 02-19-21 P650 will increase the income over the same period to $2800, and you get to buy 100 shares of $TSLA at $650 if striked in, which is a ~14% fall.

Choose one of below:

^Notional size = 100*# of options*strike level

Obviously the risk is if $TSLA falling below your strike level, your loss would be equivalent to holding 100 shares per option, minus the premium. 

This trade also applies to $TSLA holders who want to opportunistically buy more shares in any correction, while getting paid to be patient. Due to its high risk nature, we only suggest using Feb-2020 puts.


For $TSLA haves who start to have cautious views on its valuation and short term volatility, we believe covered call is also a great strategy. That is, for every 100 shares of $TSLA, you can sell an OTM call to boost your income if you believe $TSLA has limited room to go up by the option expiry date. 

So similarly for example, $TSLA 02-19-21 C1000 trades at $1685. Your profit will be capped at $1000, which is a 32% increase in a little over one month; however otherwise you get to collect a full premium of $1685, increase your return by 2.2% in less than 2 months.

Rolling covered call strategy can be very profitable under some market conditions, as a great to way to boost your income, especially when you expect the parabolic move cannot repeat. Subscribe to make sure you don’t miss our rolling calls.


Disclosure: I am/we have positions in the TSLA options mentioned in the article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.