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    « US 1 Article #1 Nov 7, 2018 Buy Aumann (AUUMF) | Main | Is Tesla about to have a Theranos moment? »

    Tesla’s Theranos moment arrived -- should you sell your puts?

    Sent to subscribers 9/13/18

    RE:  Is Tesla about to have a Theranos moment?

    A month ago, when Elon Musk vowed to take Tesla private at $420, I suggested that, if he didn’t, the downside could be spectacular. I recommended buying puts at a strike price of $290. If you bought the Oct 19 $290, your position would have increased from $9.35 to $21; last week, you could have sold at $38 or 306%. If you have already sold your Tesla puts, you can ignore this.

    Is now the time to sell? There are three things I don’t understand: casino gambling, Donald Trump, and Tesla at $300 – yet, somehow, they all persist. Before the meltdown last week, I was astonished that someone was buying Tesla at $300.

    Goldman Sachs has suggested that TSLA could drop 30% from $300; as I write this, TSLA is at $289, so $210 is still a way off. At a $49 billion market cap, TSLA is valued at $12 billion more than Ford Motor – a company that profitably produces 125,000 cars a week to Tesla’s cash-incinerating 5,000.

    Friday’s meltdown was caused by executive departures and a video of Musk smoking weed. I had suggested that shorts holding a $12 billion position would fiercely pursue Tesla and that there could already be 100 lawyers working on the case. My estimate of lawyers was low. Much more could go wrong for Tesla: it is proving to be not only just another car company, but possibly a below-average car company. The departing Chief Accounting Officer walked away from a $10 million new hire grant that would have vested over four years; presumably, he felt that TSLA was just too much trouble, a potential legal nightmare, or a reward that would never materialize.   

    A month ago, a 100-point drop in TSLA was not assured; it is still in doubt as the price floats up from last week. The magical thinking that made $420 a share seem plausible makes $300 seem like a bargain to many adoring Tony Stark fans. In pricing strategy, this is called anchoring. Slap a $1000 price on one pocketbook so that the $300 pocketbook seems like a bargain. The first one never sells and the second is all margin.

    There are two worlds in which the current price for TSLA is a bargain: (1) in the future, Tesla learns how to build cars and crushes all the other competition – just as Amazon has crushed so many retailers. (2) in the future, Tesla has a battery breakthrough and becomes the company that powers the planet. I think the second is more likely, but neither is in view today.

    If you own TSLA short-term puts, lock in a profit. My mentor, Bob, said, “You never go broke cashing show tickets.” 100+% in a month is even better than not going broke. If you bought puts a year out, you might want to hold onto them. “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Benjamin Graham  Outside of a battery breakthrough, TSLA could take a heavy dive.

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