Elon Musk May Have Really Done It This Time
Elon Musk certainly likes the spot light. In fact I think that at times he likes it more than making money. The fact is Mr. Musk makes plenty of money the old-fashioned way OPM (other people’s money). He has successfully been doing this for the last 15 years since he launched Tesla motor company as a privately funded auto business. He took the company public on September of 19, 2010 raising $226 million dollars when he sold shares at $17.70 per share.
It is important to understand that Mr. Musk did contribute $1,000,000 of his own money when he started the business in 2003. That was the last time that he invested any of his own capital in his business. The rest of the money has come from private investors or the market pumping up the price and driving the EPS valuations that must be a jillion to one. The amazing fact is that during the fifteen years that Tesla has been in business, it has never made dollar one. If it weren’t for government funding the company would be bankrupt!
He pulled a clever one when he cashed out his investment in Solar City by selling it to Tesla for a little over $2 billion. At the time Solar City had a market value of less than a billion and the cash to buy it came from Tesla which was funded by various governments grants. I thought that they put people in jail for that type of scam. Solar City has never made dollar one so that is in line with the way it is run.
Mr. Musk hates answering the tough questions that he is asked by the street. He is notorious for overestimation of production and sales and doing an even worse job with revenue and profit. Who needs to make money when all you have to do is go to government agencies and they will write any check you want if it is for renewable energy. So, he has come up with a new idea. Get rid of the government agencies that want accountability for your actions and take the company private!
On Tuesday August 7, 2018 in the middle of the trading day he decided it was time to tweet that he had decided to take the company private in a deal that would value it at $70 billion dollars. That is $90 a share more than it is trading in the market. Before trading could be halted the stock rose 11%.
At first it seemed like another crazy tweet to drive the shorts nuts, but this time it appears he has angered the big banks that have made Tesla the biggest short in the market. Perhaps they decided to fight back and asked the SEC to get involved in solving the mystery of the tweet. They want to prove that what Mr. Musk did was not another fit of megalomania but was in fact insider trading.
If Mr. Musk can’t come up with the $70 billion he said he has in hand, the game may be over for him. Hundreds of traders and investors have spent time visiting friends behind bars for doing a lot less than claiming that they have $70 billion in cash laying around to take their business private. Personally, I think it is time for someone to slow him down a bit with his claims and this may just be the chance to do it!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions here with a short paragraph.
Question: Why is it when I buy options on earnings reports and I am right as to the price direction I still lose money?
Answer: That is because the other side of the trade that sold you your options has priced in movement that would not normally be expected. If you are trading ABC stock and it has a normal range of +/- 4.00 a week, it is not uncommon for the stock to have its range increased by 50% to 100% just before earnings are released. Over my thirty years of trading options, I have seen hundreds of times when the earnings release is as expected, and the stock barely budges. When that happens, all of the options go down in value. It doesn’t matter which ones you own. My advise is that if you want to trade earnings never buy naked options, especially the expiring straddle or strangle. If you want to play this game, you should spread the premium. Either sell vertical or horizontal spreads. You might not hit a home run, but you will hit a lot of singles and doubles and will have very few strike outs.
The Wise Guy Report: The View From The Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover the MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. This week let’s take a look at last’s week price action in the VIX.
VIX Reaches New Lows (Possible Bottom)
The only real price action in the markets last week, except for TSLA was the lack of price action in the rest of the markets and indexes. Gold and Crude Oil had very little movement as it appears that traders may wait until “Holiday” is over in Europe to begin to trade again. The Equities had very little range as it was another typical week in the dog days of August. This lack of movement has been reflected in the VIX index which reflects the degree of “fear” in the market. Simply put, it is the ratio of the open interest of calls and puts in the market. When it is low it is said to be little or no fear while when it is high, traders expect a volatile market. This week the VIX set an all time low as it touched less than 10 before finally closing above that number. There is no fear in the market and option premiums are at or near all time lows. Investors love this type of market as they can sleep at night. Option traders dread this type of price action as it is harder to make money. I know one thing for sure, some event will occur and bring the fear back. Unfortunately fou us option guys, it doesn’t look like it will happen anytime soon.
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Each Monday morning by 11:00 EST, the plays for the upcoming week plus updated model portfolios for each strategy are posted on the site. The prices in the reports are Monday morning’s opening prices. In addition, I have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the floor and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to one or more of the subscriptions for only $19.95 each per month on a month to month basis with no contract or strings attached. If you subscribe to three, it is only $49.95 per month while you can subscribe to all six for only $79.95 per month, a 33% discount. I think you will agree that this is a super offer so give it a try. Click on www.optionomicsgroup.com to access the Optionomics Group web site and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert