$TSLA $1500 and margin?

 

27 dec

ok have to say a few words about what ive read over this last month. there are 3-4 people i follow just for their incites into TSLA. sales, balance sheet analysis, etc... the shit im not really too interested digging into but will gladly read if its dumbed down and easily readable being the good lurker i am. there are also a couple i follow for amusement but in a way like you watch a house on fire. you hope no one got hurt but you just cant look away.

first off, my method is i currently have 5 Jan2022 deep in the money calls and i sell short term calls against for premium. my personal goal is to make at least $2500 a week from just those TSLA calls. its not alot but to me its really good for just waiting. essentially like covered calls, roll out from week to week, sometimes 2 weeks to get more premium. on a side note ive discovered that it seems like par for the course if youve made good coin on TSLA you have to tweet out screen captures of how much or your percentage of profits routinely. very annoying. but since it bears on this explanation ive had my best year ever trading and i owe it all to selling out of the money calls on TSLA.

so thats me, thats what i do, and thats the risk reward im managing. as far as one TSLA guru who will remain nameless because i dont want to be blocked so i can keep watching this unfold... this guru is developing quite a reputation and following for buying way out of the money calls such as Jan 2022 1500s etc and using margin to do so and not selling those calls , instead converting to stock to save from paying taxes. you know who i mean if you follow him. developing a reputation as in twitter followers, interviews, etc

first thing and most importantly for all us "normal" traders / investors... why we cant do what he does because he clearly has a huge bankroll from the get go and can absorb a margin call. if i could straight up afford 500 shares of TSLA post split and that was 25% or so of my portfolio id just buy the common. thats why most of us mess with options... side note again.. i chuckle sometimes when i read the TSLA stream and i see someone tweet that they added 10 shares on the dip. which is big in dollar terms for some but the shear dollar movement in the stock required to see a decent gain is huge. that capital could be used selling credit spreads, etc 

regardless im going to say im pretty normal compared to other traders in account size but come option expiration in 1-2 years i dont see me having 300K unused in my account by then to convert to stock. i would argue taking profits near expiration and having the long term capital gain taxes apply and using the capital to buy at least 2 possibly 3 further out leaps.. example i have a Jan2022 300 strike leap i bought right after stock split.. so nearly 350points in the money(etrade says its up 176%) .. so come Jan2022 i would close that out for whatever profits, be subject to long term capital gains, lets say the stock is at $1000 by then.... and then with all that capital i might buy TWO or THREE Jan2024 /2025 calls. maybe have to throw in some cash to make it happen. the point of my Leaps is not to accumulate stock, its to have a base to sell short term premium against. so instead of converting for 100 shares at a cost of $30000 (the cost of the call) and being able to sell only one short call against, i would have two or three long calls to sell short calls against. best case for no added cash. yes taxes but im sure there are some losses i can use against.

ive watched part of his youtube interview. honestly fell asleep before it finished but got the jist. our guru is not afraid of margin calls. my read is that mr. guru is already a multimillionaire with plenty of cash on the sidelines.. ie he could take a margin call and not have to eat ramen noodles  for dinner. remember those noodles?? 10cents a pack in college?. ive been thru a margin call.. the best way to get out from under it is to close out the stock/options thats causing it... just take your loss and move on, take your kick in the crotch and move on.. problem is those margin calls come super fast.. think back to march of this year when the market sold off. Markets In Turmoil everynight on cnbc.. no shit there i was.. chart below is post split so in the circle the top was around 880 or so . im selling 5 delta short puts ... 5 DELTA is said.. a 4 delta is a 2 standard deviation move. each broker is different but i believe at etrade you needed 20% cash on hand to sell a put. but if youre on margin you have to keep having more collateral available if the stocks (your portfolio goes down), etrade emails out that TSLA requirement is now 40% or whatever...then later 75%, then 100%. i remember 3 emails in one day.. so i rolled out and down an week that bought me some time but not enough. got to the point where i would have to close out the rest of the account to be the collateral for the short puts... ended up just closing the puts, taking a $10000ish hit and living to fight another day. (and vowing to make it back off of TSLA in spades)

so point being in spite of being somewhat diversified i could not outlast the panic of the 2-3 week selloff. turns out if i could have held out to opex i could have closed the short puts for a profit.. (and the 5 delta pricing held up) i just got forced out. now having said all that, if you do what our guru is doing you are playing with fire. i also saw another youtube clip from someone else that he mortgaged his house to buy more stock.. so our guru despite having plenty of cash can very likely withstand a 300 point drop in the stock.. will still suck, will have to sell some of his positions or add more cash to the account. i think i caught a segment where he said he welcomed a margin call because then he could accumulate shares/leaps with a better cost basis. ill take the side of being opportunistic in adding positions, such as selling puts as a way to enter at lower cost basis

another note, ive had very short interactions via twitter with a couple of the high profile TSLA bulls similar to the guru, as in out of the money stock purchases in 2022 and 2023.. and im also to the point of making a generic statement that most of these guys have not even a basic understanding of options. specifically selling options for premium. for instance prior to the sp500 inclusion..during the run up hype. one mini guru was buying 800strike calls mid next year.. i asked if he was at least selling shorter dated calls against those 800's to bring in some premium and lower the cost basis as well. going off memory a near dated 800 was going for $500ish. his response was "selling calls is risky, i dont want to lose my shares" ... WTF? thats a newbie comment of not knowing what to do when your near term call is about to expire, or when to roll for credit. everyone is a genius when the stock is going up. but what if it stays range bound, as in between 600-700 for a year. now what are you going to do? can you make money in that environment?

im afraid that the stock appreciation has made experts out of people that in hindsight can be attributed to being that 1% that got it right. theres always a lotto winner somewhere. doesnt mean they were smarter than you. just like me buying a 300 strike call in Sep doesnt make me any smarter.

Forgo some of that upside potential. you cant go all-in every hand. at some point you will get burned. can you survive if some geopolitical event caused  TSLA to drop 300 points this week? and your broker all of a sudden to cover his ass required you to have as much cash on hand as you want to margin. if you say No then you have too much risk. 

Similar but not similar, when the stock was added to the spy and did that crazy move to 695 on the 69million block trade and then one second later down to 670s.. saw multiple tweets about how they held calls / puts into opex expecting the market to do one thing but now they have $35000 loss.. once you think you have it all figured out, the market will take it away from you to show youre not as smart as you thought. me included.

On the ground with the homebuilders

 

had to add some commentary about whats really happening on the ground with homebuilders. seeing nearly weekly reports about best interest rates ever, existing home sales drops, new home prices all time high, etc, the reports coming across my stream are conflicting as if they dont remember what they (cnbc) just posted the day before.... so heres the deal.. 

a few of my long time followers know i work in the homebuilding industry in south texas and "i know a guy that knows a guy" . these comments are not on a specific builder since the issues are industry wide. 

Sales - sales are best ever ive seen, even better than pre-financial crisis.. difference is the pace is better without the bullshit no income verification, 520 credit scores, no job type of loans that helped cause the financial crisis.. if you roll into a sales center with a 520 credit score thinking youre getting a home loan for $300,000, let me save you a trip. they dont need your business. i took a recent drive thru a couple subdivisions with new homes under construction that had 4-5 different homebuilders and price points. it was assholes and elbows, so much construction happening almost to the point of not being able to drive down the street. saw 95% "sold" signs for homes under construction. that means pipeline. that means they are closing those homes the same month the construction is finished. that means very minimal finished homes that are unsold

Pricing - the difference between a home  under construction vs finished is going to be the pricing. those 95% of homes that are sold... why would the homebuilders offer any discounts  for those? outside of the paltry 1% or so to use their lender or something similar. with the current pace of customers prices are getting raised across the board.. between a couple thousand or 5% straight up. or you can buy this one that will finish next month for sticker price or if you want to build one in the new section for 3rd quarter 2021 for 3% more. 3% doesnt seem like much but on a $400,000 sticker price that $12000. eventually the price will reach a tipping point but the market is not there yet.

Starts - new home starts and permits are always metrics shown on the business shows, the homebuilders see whats going on and its not a bad problem to have. that being not enough homes on the ground so new starts get increased.. ive seen reports /tweets from homebuilder management about wanting 10% or better growth next year.

Labor - despite what you hear on TV about the unemployment rate, there are significant labor shortages. homebuilding boils down to whats happening at the subdivision level. thats where 1-4 construction managers schedule the daily labor and material work to happen. those subdivisions have their own tipping point. a frame crew can only go so fast, the painter crew can go only so fast, the roofing installers can only go so fast. so the grand visions of just slam more new starts down the pipeline doesnt always work. the homes just get backed up. the labor base is at its tipping point now. again from that guy that knows a guy, good ways to track that are how many people are looking for work. in south texas its generally larger companies that do plumbing, electric, HVAC, etc , they have the contract for multiple subdivisions or certain series. the smaller trade partners (trades) such as painters, carpenters, cleaning crew, framers, etc are selected by the construction manager at the subdivision level and its literally a crew in a van. they have the appropriate insurance etc with corporate but there are no unions etc here. so point being, no one is looking for work.. they have as much as they can handle now. i even heard a really stupid comment from Melissa Lee on one of the Fast Money clips (which is not normal for her but if youre not in the industry you dont know)... she said labor is not a problem in construction with the high unemployment rate, as in there are plenty of people looking for work.. ok , well i guess. but do you know anyone that looks a TPS reports all day or works as a bartender that has lost their job and decides to now want to hang drywall? not happening . current significant shortages for labor are flooring installers.. tile and carpet. just not enough crews reporting in first thing with the flooring companies 

Material / Covid - 2020 has seen unprecedented disruptions in the supply chain. innocent events such as a plant in Pennsylvania shutting down from covid because 2 guys tested positive and that plant makes all the cabinets for the texas region, or the window manufacturer shutting down their lines because a guy was at a BBQ where someone had Covid and they supply nearly all the windows in the city for muliple builders or a near miss from a hurricane in Texas rips thru Louisiana where some lumber mills are resulting in really long pieces of lumber being backordered... those really long pieces you would need for rafters. no rafters means the home comes to a stop. the pendulum swings back and forth on whats short, currently shingles and garage door panels, last month dishwashers. i hear roof decking radiant barrier and hardi type siding products are getting tight also. so not just covid, think of all those homebuilders , both public and private, plus the renovation crowd increasing the orders to capitalize on the increased sales.

Stocks - i dont trade futures so i cant participate in lumber price movements and from my research the best play has always been just trade the homebuilders, not the ETFs. the builders tend to move in concert but of course some execution risk. ive been trading LEN Lennar for ages so i just stick to that one. TOL Toll brothers reports a few days prior to Lennar so its a good way to gage the tone of the sector based off what Toll says.

Bottom line - despite the inconsistent CNBC tweets that vary from "its the best ever" comments to "market cooling" , the homebuilders are building as fast as they practically can, customers snapping them up even before construction has started and paying full price most of the time, and per recent conference calls the homebuilder margins are best ever. thats a business i would be interested in trading with a bullish thesis. there will be some give and take as usual. having lived thru the financial crisis with the builders and watching them barely survive, the issues they are working thru now are good problems to have.