Great Week for Tesla (if you were short)

by JDH on July 27, 2019

As regular readers of these ramblings know, I am not a fan of Tesla.  I believe that electric cars are the future.  I don’t think we are quite there yet.  Battery technology needs to improve, and we need to find a better way to generate the electricity that will power these cars.  (Burning natural gas or coal to create “clean” electricity is not the answer.  Windmills and solar are not a viable solution yet either.  The only true solution is Generation 4 nuclear; when that is perfected the world will be a different place, but I digress).

While I believe in electric cars, I don’t believe in Tesla, because I don’t believe in Elon Musk.  The general consensus is that he is a visionary, a genius.  He may be, but to me he is, at best, a salesman.  At worst, he is a huckster.

Tesla is built on promises, and a lot of government money.  That’s fine to get started, but a company as old as Tesla should be surviving on it’s own, and it should be profitable, and it isn’t, and it isn’t close.

So, I buy puts.

I buy puts that have two or three months until expiration, well out of the money.

On July 8 I bought the October 200 puts.  Tesla was trading at around $230 at the time.  I paid $14.

I was early.

So, on July 22  bought more, at $7.20.

And on July 24 I averaged down again, buying more at $6.20.

Then on July 25 Tesla announced their earnings, and they were horrible, and the stock tanked, and I sold some of the options for $9.80, and sold most of them for $10.75.

Nice little profit.

I assume Elon will now announce that he is going to the moon by Christmas, and that will for some unknown reason make Tesla stock go up.

At which point I will buy more puts, and do it again.

The trick is to go three months out, out of the money, and only buy a third or a quarter of your intended position.  If Tesla drops, great, sell, take the profit and do it again.  If it goes up, buy another quarter of a position, and keep buying all the way up, because at some point more crappy news will be announced, and it will tank again.

But that’s just my opinion.  I am biased, because I don’t trust the guy.

Next week, more on gold, which is a much happier story.