Wednesday, October 23, 2013

Fun with the Tesla Disciples

For those of you who read these posts, all the way to the end, you'll remember the following blurb I posted on September 6, 2013....

"And just for fun, I bought two March 22 puts on Tesla Motors (TSLA).  Ostensibly as a hedge, but as a value investor, I just have to laugh at their stock price and market cap.  The puts cost me $2200, and I'm down around $400 on the "investment," but I enjoy having a short position in this company!"

At that time the stock was trading around $165/share and rising every day.  The strike price of the put options is $100.  This means that on March 22, 2013, if the share price is below $100, I'll exercise the options and sell $200 shares of TSLA for $100/share and collect the difference between $100 and whatever the lower price is.  

Bank of America came out with a downgrade on the stock today, with a price target of $45/share.  If the stock were trading at $45/share come March 22, I'd collect:

2 x((100 shares x $100/share) - (100 shares x $45/share)) = $11, 000.  Then, subtracting the cost of the options, I'd have $11,000 - $2,200 = $8,800

My basic premise for the short was simply overvaluation.  I love the FAST Graphs for Tesla, which I show here:

The price has run a wee bit ahead of earnings, which at present are negative.  The company is saying they'll be positive for 2013, but this remains to be seen.  The FAST Graph for discounted cash flow based on a very strong growth rate in the future of 20% is shown below, and quite entertaining:

Better than the money however, would be knowing that I "won" a bet against a person who believes the following:

  • Tesla isn't a company, its a new religion
  • As such, it doesn't follow conventional rules of valuation
  • Elon Musk is more than just a demagogue, and his daily PR bursts on Twitter are gospel
  • I'm going to sell puts to punish non-believers
I'm still down on the trade, and admittedly, the positive momentum around the stock is crazy, and not normally a short opportunity I would consider, but it just feels good!  And oh, don't look now, but the stock has lost a bit of it's lustre these past few days....we shall see

That's all for now,


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