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Wednesday’s Whopper – Musk Claims Some Idiot Offered Him $420/share for Tesla!

Image result for emperor musk has no clothes$420 per share?!?

That's $72Bn for a car company that had to run production lines in tents to push out 5,000 cars in the last week of July and, aside from the high level of defects reported in the cars that have been delivered, word is that it's taking weeks to get even basic repairs done and MONTHS for replacement body parts to arrive.  Not only that but the Model 3s that are being delivered are averaging $64,000, not $35,000 as promised and TSLA is going to run out of $7,500 EV credits this year – as well as cash

The company lost $1.9Bn in 2017 on $11.7Bn in sales and, in Q1 and Q2 of 2018, they have lost $1.4Bn on $7.4Bn in sales so 58% more sales 47% more losses – I guess that COULD be called improvement, right?  Liabilities have "improved" from $21.9Bn to $22.6Bn but what's another $700M between friends, right?  TSLA also "needs" to build a $2Bn factory in China and maybe put a roof on their new production lines in Freemont so that's what, about $100Bn to take over TSLA for the joy of losing another $1.5Bn for the rest of 2018?

Image result for musk tweetI don't want to say FRAUD in regards to Elon Musk's claim that someone is offering to take Tesla private for $420/share as I don't know it's a FRAUD but it does sound kind of like a FRAUD – given what we know about the situation yet FRAUD is a word we don't toss around likely, even when dealing with known con men – not when there's no hard evidence of FRAUD – just a large amount of indicators that point to FRAUD…

Tesla has $2.3Bn of convertible debt that has to be repaid in CASH!!! (which would be all ($2.2Bn) the cash they claimed to have as of 6/30) which would, instead, convert into stock if TSLA is trading "more than 5% over the bond's conversion price of $359.8675", which would be $377.86, which is right about where TSLA settled yesterday after Musk's unprecidented tweeting yesterday.  

Image result for musk tweetWhile it's very hard to imagine that Musk simply made up the offer of $420/share – as that would send him directly to jail without passing go – it is possible that the offer is from one of his investors who are looking to pump up the price or it could be a legitimate offer from outside investors who Musk has convinced of the value of the company but they have not completed any due diligence yet and, when they do, they will drop the offer but under confidentiality so they won't be able to tell others what they discovered.  Either way, it buys Musk time to scramble for cash before the company runs out of it.

A real buyer with $100Bn to burn could buy Ford (F) for $40Bn, who sell $156Bn worth of cars and made $7.6Bn last year and $2.8Bn in Q1 and Q2 of this year AND General Motors (GM), for $53Bn who sold $145Bn worth of cars last year and made $8Bn (but paid $11Bn in taxes on money they repatriated) and $3.4Bn in Q1 and Q2 of this year.  That's taking over 75% of the US Auto Market and making a $15Bn annual profit for $100Bn or buying TSLA and their 1% market share and dropping $3Bn a year for the pleasure.  Hmmmmm…..

We took the opportunity, while TSLA was shooting for the moon yesterday afternoon, to set up a short position (we already had both longs and shorts in our Hedge Fund) as I said to our Members:

Let's take Elon at his word and sell 2 TSLA Jan $420 calls for $23 ($4,600) in the STP and buy 3 Jan $450 ($100)/420 ($79) bear put spreads for $21 ($6,300).  That's net $1,700 on the $9,000 spread.

The way this spread works is that we bought the $450 puts and offset the cost of them by selling the $420 puts so anything below $420 net's us $30 per contract ($3,000) and we also sold the $420 calls, so anything under $420 casuses them to expire worthless.  If Elon is committing FRAUD and TSLA gets bougth for $420, the short calls are still worthless (as it's not over $420) and we win.  If Elon is committing FRAUD and TSLA drops lower – we win.  The stock has to go up over 20% by January expirations for us to lose and, even then, we can roll the short calls to a higher strike in a longer month.  So – many ways to win, not too many ways to lose, 417% upside potential return on cash.

At the close, the $420 calls were back down to $19 ($3,800) and the $450/420 spread was $79/$60 for net $19 ($5,700) so net $1,900 is up $200 (11.7%) on day one, simply selling premium to suckers on both sides of the trade and simply waiting for things to calm down!  It's still good as a new trade and you should be able to shave a couple of bucks off the cost as TSLA continues to gyrate around.  

While I strongly suspect Musk may have committed a FRAUD – I don't know for sure so I'll make my money betting against people who think they know for sure!

We'll take another look at Tesla in today's Live Trading Webinar, Live from Orlando at 1pm, EST – join us there! 

 


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  1. TSLA / Phil

    A couple of  thoughts:

    1. The stock is now  being traded after being halted, the authority MUST have a reason, a proof that what is in the market is real, this is not an OTC company 

    2. There is a group of billionaires (Noah Harari describes them quite well in his book Homo Deus) which can play a multiple game on this (you buy Tesla but also will have a portion of Space X, or Boring Co for example), we don-t know.

    For me is very, very difficult that a guy like Musk who is the Henry Ford of the XXI century is cheating just because he has a quarrel with a group of investors playing against him.


  2. These people are in another category, they are here with us….but are not like us,

    Perhaps somebody is paying for rights of the first colony in Mars or to be named like he or his group.


  3. Good morning, All!

    Happy Wednesday! Join in the webinar, today at 1pm!

    https://attendee.gotowebinar.com/register/7711060156182176514



  4. Phil – As you mentioned yesterday, it might be worth looking at the lines now because at the moment, we could go down 20% on the Dow for example, which would be 5000 points and still be over our Must Hold line. I would think that by then we would have a more bearish view. 

    On the other hand, there could be many buying opportunities then!

    On the third hand, looking at the charts, we have gone up so fast the last 2 years that it's really tough to see any strong support area for new Must Hold line. Most support lines have been tested 2 or 3 times – is that enough to establish that as a Must Hold line?


  5. Elon Musk‏Cuenta verificada @elonmusk 18 hhace 18 horas

    Más

    Elon Musk Retwitteó Tesla

    Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.

     

     

    Musk last tweet.


  6. Lessons for the country:

    http://theweek.com/articles/782713/trump-haters-love-rick-wilsons-scathing-new-book-everything-trump-touches-dies

    The negative repercussions of Trump's presidency have been massive, and they stretch far and wide. Ironically, Trump himself hasn't been spared. If he hadn't run for office, most of the country would still regard him as a TV character; now, as "the Nickelback of presidents" (one of Wilson's best takedowns in a book chock full of 'em) his criminality and incompetence are in a bleached-bright spotlight of scrutiny — at least to those of us who haven't contracted the MAGA virus. Trump's buffoonery lends itself to easy parody, but Wilson's acid-burns of wittiness don't obscure the deeper and more tragic wounds of Trump's presidency. "We need to relearn lessons that get forgotten about authoritarianism and nationalism," he tells me. "We need to rededicate ourselves as a country … if [we're] not a propositional nation where anybody can become an American — we are not a country anymore; we are not America anymore."


  7. If Musk can pull this out, this will be either one of the greatest business deals ever or one of the greatest heists!


  8. Good Morning.


  9. The last time the VIX was this low, we had a a little reminder than it can go higher sometimes:


  10. Good morning! 

    Getting some wild swings at the open.  

    Oil dropped to $68 as API reported an Oil draw of 6Mb but a build in Gasoline of 3.1Mb and a build in distillates of 1.8Mb so very disappointing considering it's summer driving season and especially considering they are exporting 21Mb/week!  

    TSLA/Advill – I'm not saying there's no offer – that would be lunacy but companies get offers all the time that never come to fruition – they don't mean much at early stages and CEOs USUALLY don't even mention an offer unless paperwork is already being drawn up.  Even if there is an offer and there is paperwork – there's still months of due diligence where the deal can fall apart for little or no reason.

    If you think the value is in SpaceX, then perhaps I can interest you in Boeing for $200Bn with $93Bn in sales and $8Bn in profits and they already have a 10-year contract to send NASA to the moon and Mars (and a neat little side business).  They've also been building solar cars since Apollo 15's rover – so that experience is there too!  

    This isn't "just because he has a quarrel" – he has the same quarrel any CEO who is losing a fortune has with investors who prefer companies that actually make money have.  Just because he is a great showman and keeps throwing out all the cool stuff he's "working on" doesn't mean he doesn't need to make actual money – that was the difference between Edison and Tesla or Ford and Packard – it doesn't matter how cool your stuff is or even how much people like it – if you can't make it profitably, it won't be around long enough for people to actually enjoy it.  

    I mean, you're a fan but even you have to start saying  "maybe they are paying for naming rights to Mars" because, deep down, you know there is no possible, rational way that TSLA is worth $75Bn – especially with the debt and losses piling up.  Musk doesn't own Mars to sell, nor is he likely to be the first guy to get there just because he says he'd like to.  He hasn't even been to the moon yet – NASA has and so have China and Russia – all much more likely to hit Mars before Elon and we already know Russia is happy to take cash for space favors.   Even Branson is further along than Musk.

    I think the problem with this TSLA thing is people have simply lost sight of what a Billion Dollars is.  We all talk about Billions here and there but, even to a multi-Billionaire, a Billion Dollars is still a lot of money and it's not something you lightly throw $15Bn extra into a deal or that you lightly take on $20Bn debt obligations or you plan to take $3-5Bn in losses before there's even the possibility of making a profit – let alone the kind of profit that would justify tying up at least $80Bn (with no debt paydown) completely illiquid for YEARS!  

    Big Chart – BIGGER!!!   Yes, StJ – I have to re-do the lines but my vacation buys me 2 weeks, which is usually the two weeks when we have a crash and end up keeping the lines…




  11. Experts Cast Doubt on Musk’s Envisioned Buyout of Tesla


  12. Capitalism | Debates





  13. Phil, what are you thought about trading VIX futures directly (rather than VXX – to which I don't have access). Might this be a good play long at this point? I guess the likelihood of VIX going further down is quite limited… 


  14. I think Elon is now as close to Mars as he'll be for the next 17 years.  https://www.space.com/41329-mars-closest-to-earth-2018.html


  15. Well, with TSLA we will have a better entertainment for this summer that  X-men 35 or  Heroes of the Galaxy 99…lol!

    Let ´s see!


  16. Phil: Like you, I don't see how the Tesla thing can be for real.  Are there investors or Sovereign Wealth funds really so stupid to want to take over Tesla for that kind of $?  

     

    And yet, if it is not real, it seems almost like a death-blow for Musk and perhaps Tesla.  Could he ever regain credibility?  It would seem almost fatally damaging to a company in a very, very fragile financial position.  Could Musk really be this imprudent?

     

    I've got short Tsla Nov 470 calls, Jan 470 and 500 calls, and Jan 2020 700 calls.  If the deal goes through, they clearly expire worthless.  Premiums have already dropped signficiantly given the theoretical $420 Cap on Tesla.  My question is what happens if the notion of going private falls apart.  It seems to me that Musk and thus Tsla are irreparably harmed.  Like it or not, Tesla's perceived value has a lot to do with its "visionary"  CEO.  If the deal falls apart, are the premiums paid for these way out of the money calls really going back to the status quo ante?  Right now, the Jan 2020 700 calls have dropped from $12 to about $4.  Do you have an opinion on how these react if no deal materializes? 


  17. LOL Advill… 


  18. Teachable moment Phil (aren't they all) – Why did you not just sell the naked even higher priced calls?  Still too risky?    and…

    In this case where the stock is taken private are all the option positions closed at the final price such that if you sold the $500 calls you would get all the premium?  If one public company buys another do options also close or do you end up with some adjusted options of the buyer?


  19. @tangledweb

    If another public company buys that company for stock, options are adjusted.  If it's cash, they are 0 if out of the money and same with a company going private below call price.  And the hedge fund currently had a very nice position of calls at 500 before this news took place so Phil is well covered.


  20. No help for oil from inventories, net build overall.  We'll see if $67.50 holds, maybe $72.50 on /BZ and $2.05 on /RB:

    • EIA Petroleum Inventories: Crude -1.4M barrels vs. -2.8M consensus, +3.8M last week.
    • Gasoline +2.9M barrels vs. -1.7M consensus, -2.5M last week.
    • Distillates +1.2M barrels vs. +0.2M consensus, +2.9M last week.
    • Futures -1.73% to $67.97.

    VIX Futures/Alter – I think it's a good percentage bet to be long VIX futures but not sure what you have access to.  We show VIX at 10.85 and you can buy Oct $13 calls for $2.50 but the Oct $10 calls are $4.80, with a ridiculous amount of premium.  You can't "buy" the VIX, just bet on the outcome at ridiculous premiums, which is why we don't.  

    Mars/Rexx – Very good point.  One of the hallmarks of a great con is to promise a thing that you don't actually have to deliver on for a very long time and Musk knows he only has to make one big excuse in 17 years and then can go back to conning would-be martians for another 17 years after that – at which point he'll be over 80.

    TSLA/John – I said a while ago I thought Musk's back was against the wall and we could expect some wild stuff to be done to cover-up the near collapse of TSLA and – here it is.  If you are bout to be completely F'd then taking a chance which can F you up is not irrational, is it?  Still, I wouldn't go too crazy with shorts because crazy gambles sometimes pay off.  

    If this "deal" falls apart, the stock will drop pretty hard but, as I said, I think he's got an offer from an idiot or a conspirator and, either way, it gives him a good 4-8 weeks to string people along and I'm sure he thinks he can turn things around and crush next earnings and it won't matter because everyone forgives a successful inventor.  If you made great money selling short calls in a day – I'd certainly take a bit off the table and set sensible stops on the rest but I'm way more worried about $300 (where the fund sold puts) than $500 (where the fund sold calls). 

    Higher calls/Tangled – We did in the hedge fund but, for the STP, the point is to teach people how to take advantage of a move like that and you don't get teachable moments from short $500 calls that you have to sell a bunch of (at great ordinary margin) to make it worth doing.  As to what happens – depends on the deal – there's no standard.  

    And what Rustle said! 


  21. I'm struggling with the butterfly mdlz – do I sell something – or nothing -  this august expiration to  trigger the premium sale of $1,140?


  22. Phil/Fund

    Fund has puts at 200 not 300.


  23. Check out the chart on the TSLA $500 calls.  We had sold them a while ago and they first shot up on the news (huge loss) but then calmed down.  Understanding why you are losing money keeps you from panicking but it's also to reason I'm not at the water park today – things are too crazy to leave alone at the moment.  

    MDLZ/Damo – As I said in the review:

    • MDLZ – Brand new so nothing to do but wait and see if we keep our Aug $42 target.  Like GIS, they really couldn't be more boring and we have $5 of wiggle-room (12.5%) on our short put/call combo and, even so, we only sold 5 of each as it's a new trade. 

    Our position is:

    Short Call 2020 17-JAN 47.00 CALL [MDLZ @ $42.78 $-0.16] -20 7/13/2018 (527) $-4,600 $2.30 $-0.00 $-2.30     $2.30 - $10 0.2% $-4,590
    Short Put 2020 17-JAN 40.00 PUT [MDLZ @ $42.78 $-0.16] -10 7/9/2018 (527) $-2,700 $2.70 $-0.14     $2.57 - $135 5.0% $-2,565
    Long Call 2020 17-JAN 40.00 CALL [MDLZ @ $42.78 $-0.16] 20 7/9/2018 (527) $10,800 $5.40 $0.25     $5.65 - $500 4.6% $11,300
    Short Call 2018 17-AUG 42.00 CALL [MDLZ @ $42.78 $-0.16] -5 7/12/2018 (9) $-700 $1.40 $-0.45 $-1.40     $0.95 $-0.18 $225 32.1% $-475
    Short Put 2018 17-AUG 42.00 PUT [MDLZ @ $42.78 $-0.16] -5 7/9/2018 (9) $-500 $1.00 $-0.86     $0.15 $-0.00 $428 85.5% $-73

    And the chart is:

    So we're right on target and we sold $2.40 of premium at $42 so anything between $44.40 and $37.60 is a profit for us of 5 x 0.01-$2.40 (up to $1,200) against a spread that cost us net $3,500 to enter.

    We have 18 months to sell and we may make $1,200 (not likely) or $400 but, either way, we have 16 more months to sell and if MDLZ is at $44, we keep the $500 from the short puts and roll the short $42 calls (now 0.90 but would be $2) out to the short Jan $44s (now $1.40) for about even and then we'd sell some more puts for more money – wash, rinse, repeat. 

    All we have to do, over the course of 18 months, is squeak out $3,500 in gains from the shorts (and we're only selling 5 of 20 covered) and we get our $3,500 back and then, whatever we have between $40 and $47 x 2,000 is our bonus gain.

    Sadly, you have to learn to be patient and we rarely adjust the Butterfly Portfolio positions outside an expiration week, when we do our rolls and adjustments (after the premium has drained out of the positions we've sold).  

    Puts/Rustle – Oh good, then I'm less worried (but still worried). 


  24. Speaking of crazy – check out /RTY today:

    Tempting but all too crazy to play this morning


  25. Apparently moviepass CEO making some live comments in about 15 min. I never got in to this one but for those on the board who do, not sure what he'll say but might move the stock?





  26. Feeding the ten billion


  27. White House of Lies





  28. Rep. Chris Collins – SWAMPY  Indited for insider trading. Amazing what he said last year 

    Collins, one of President Donald Trump's most vocal supporters, was once heard bragging in the House Speakers' Lobby about “how many millionaires I’ve made in Buffalo the past few months.”

    Several GOP lawmakers, including now Health and Human Services Secretary Tom Price, bought shares in Innate Immunotherapeutics. Price made more than $225,000 on his purchase, more than tripling his initial stake. Price's investment in Innate Immunotherapeutics became an issue in his confirmation hearings.

     

    Now he told son and others about failed tests and they sold. 






  29. Advocates condemn psych techniques used to keep kids online


  30. ETM – nice move!


  31. Scott – Thanks again for ETM recommendation.  !

    Took 2/3 off the table, both calls and puts.


  32. Albo – you are welcome. glad it worked for you! i'm playing it slow with covered calls.

    HL earnings tomorrow.. pretty dismal in the sector. new mines for HL though,  playing a cheap Aug 17 strangle bot 2.5 puts and 3 calls. purely speculative. if it moves either way, could be a multibagger in a day or two. expect it to come to nothing, but … it's an inexpensive play.


  33. Good luck !   I'm still short a bunch of  Jan $3 puts. 


  34. Went long on /RB for the webinar at $2.02 – happy to add to it at $2 and roll it to Sept if they don't perk up but expect to do well into the holiday weekend – $2.10 in the very least is $3,200+/contract.

    Not much else happening so I'm going to get ready to go enjoy this very beautiful day.


  35. Mitch Lowe on Bloomberg… 

    unreal.

    What a POS!





  36. U.S. can’t be trusted, Iran’s Rouhani tells North Korea



  37. US imposing new Russia sanctions over chemical attack


  38. HMNY/Jabo, I agree the interview was disappointing.  While his interview didn't appear very confident, I still like the storyline and his career in the video and rental industry (Netflix, Redbox) is impressive.  Of course, they are at the bottom of a very tall mountain and AMC competing with their own movie card lacks vision, maybe even making MoviePass obsolete.  Which is bad for the movie industry that is already suffering.  

    Movie Pass patented technology is about data analytics and if they are going to make it… they have to sell that concept to the movie industry. 



  39. The WTO’s quarterly outlook indicator, a composite of seven forward-looking components, showed a reading of 100.3, down from 101.8 in May and 102.3 in February, signaling “an easing of trade growth in the coming months in line with medium-term trends,” the WTO said.

    DAX and other markets took a dive around 6:15.  Is the above news the immediate cause?


  40. Good morning! 

    Running late – had breakfast with family.

    Yes, other countries pay attention to WTO, we may withdraw from it.