Tesla Battleground: Ideas for Fans and Foes

If you're like me, you were glued to the Telsa drama on Twitter yesterday. These are truly interesting times when a CEO can take to social media to discuss important issues on their company. Elon Musk certainly isn't the first. Netflix CEO Reed Hastings blazed that trail. It was mainly because of Hastings, that rules about posts and disclosures rules about posts and disclosures exist on social media. Still, there is plenty of confusion out there whether Musk's tweet about possibly taking Tesla private at $420 along with the statement he has secured funding was within current guidelines. While I've read the rule several times, the tweet still may fall into a gray area. I'm not declaring it was illegal nor am I saying it followed the rules. One thing is clear, Musk disciples will see no wrong and Tesla bears will push hard for an investigation. It kind of feels like we've been down a similar path before. What's becoming painful obvious, however, is that there are some folks in positions of power who should simply not be active on Twitter. While the market questions how Musk can get this company private, I focused on one portion of this tweet Tuesday from his @elonmusk account. My hope is *all* current investors remain with Tesla even if we're private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity's SpaceX investment. — Elon Musk (@elonmusk) August 7, 2018 My hope is 'all' current investors remain with Tesla even if we're private... First, we all know hope is not a strategy. But second, if Musk got his wish, he may not need much capital. If he believes the majority of shareholders will keep their shares, then, maybe, he figures the 27% short interest will have to repurchase shares from the majority of shareholders that want to sell around $420. The remaining sellers could possibly be covered by a single entity investing say $2 billion - $5 billion in the stock. I'm looking at you, Saudis. If any shortfall beyond this is under the $5 billion mark, I'm certain Musk could find the money. I'm not sure the terms would be favorable, but I doubt he'd care. He'd be selling the dream of all that could be accomplished as a private company. He'd waive the successes of SpaceX until the last needed dime hit the coffers. However, and this is a big one, if the needed cash is in the $20+ billion range, then I think the dream is dead. The shares are trading at resistance levels of a very wide bullish channel on the weekly chart. We're looking at a floor of $260-$280 and resistance of $380. There's nothing more exciting than a $100 range. Technically speaking, a close above $380 would be bullish for shares, but one has to think if the privatization talk withers, the stock will return to below $350, if not to $310 on a loss of confidence. If a deal goes through, then TSLA would trade in the $400-420 range. That provides for a $20-40 upside against a $30-70 downside. This is such a challenging play, so I'm going to lay out two for consideration. One is you believe in Musk. One if you think this falls apart. Trade for the Bulls: --Buy to open 1 November $400 call --Sell to open 2 November $420 calls --Buy to open 1 November $435 call Target Entry: $4.00 or less Net Cost: $400 Max Risk: $400 Max Reward: $2,000 Days Until Expiration: 100 Breakeven: $404 Trade for the Bears: --Buy to open 1 October $335 put --Sell to open 2 October $310 puts --Buy to open 1 October $290 put Target Entry: $2.50 or less Net Cost: $250 Max Risk: $250 Max Reward: $2500 Days Until Expiration: 72 Breakeven: $332.50 These are both structured as unbalanced butterflies. The aim here is to keep risk levels low while still offering an attractive upside. Even if the stock moves above or below the outer-most strike, the trade would be profitable if you're on the correct side of the ledger (bull or bear). This will continue to be a battleground stock, so if you want to be involved, do not risk more than you can afford to lose. For now, I'm staying on the sidelines.

Tesla Battleground: Ideas for Fans and Foes

One trade is if you believe in Musk, the other if you think things will fall apart.

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