Hello Tesla lovers and haters of the world.
It is December 23 2020. The price of one TSLA share stands at $ 645.98. The company is worth $ 612.32 Billion according to its current market capitalization.
We decided to sell one put option. Most people do not understand what options are and how they work, so let us try explaining our strategy in simpler terms.
We will give the following guarantee to someone:
If and only if the stock price of TSLA is 640 or below
Any day within the next 395 days
They can choose to give us 100 shares of TSLA
We will give them $64,000
For this guarantee they will:
Pay us a one time fee of $16,103
Today
That money is ours forever
Using the terminology of the stock market world:
We sold one TSLA put.
The expiration date is on Jan 21 2020. 395 days to expiration (DTE).
We received a premium of $16,103
Out capital requirement is $64,000
Some more advanced terms:
This is a cash secured put, meaning that we already have the $64,000 cash available in our account in case we have to buy the 100 shares.
This is a LEAPS (Long Term Equity Anticipation Security) put option, meaning that the put option expires in a year or more.
On the day of the trade the implied volatility (IV) of the stock was 63.3%, which is high volatility in general but historically for TSLA it is low.
The annual yield on capital is 23.2% (if we do not have to buy the 100 shares), not bad at all.
We consider this a very risky trade because of the crazy rally the stock price had this year. Up more than 669% 🤯
So based on that we would expect the stock price to drop at some point in the next year. But how much will the drop be? 10%, 50%, 80%? Maybe the stock price will rise further instead. If Tesla becomes a trillion dollar company the price might nearly double. Nobody knows what comes next and we will not try to predict the future. The market is irrational and two sided.
If we end up buying the 100 TSLA shares our cost per share is: $64,000 - $16,103 received = $47,897 / 100 shares = $478.97 per share. That is a 25% discount from the current price. We are satisfied with that price and we wish Tesla the best for the future.
We will keep you posted in case we close this trade or when it expires. Looking forward to your questions, comments, feedback, opinions and thank you for reading this post.