TSLA Jan'25 Options & The Current State of TSLA
I haven't updated in a long time. This is partly because other things in my life have taken priority over Tesla, but also because My Tesla Investment Thesis 3 still speaks for itself, and I expect it will for the foreseeable future. It's unlikely that anything will change about Tesla's long-term outlook, until perhaps we see more specifics surrounding AMaaS' exact business model, financials, and rollout that will allow me to make more precise predictions, or until there is more clarity surrounding Tesla Bot's potential, business model, timeline, and financials.
At the end of that blog post I noted three things I'll be paying attention to going forward:
- Big changes to Tesla's future outlook that change my long-term outlook on the stock.
- Options opportunities to take advantage of.
- A stock price of $3,000 (pre-split, so now $1,000).
This post's purpose is to take a close look at TSLA's outlook for the next two years and the attractiveness of Jan'25 call options, because TSLA is currently trading at a two year low.
Table of Contents:
- Tesla in 2023 and 2024
A look at Tesla's fundamentals over the next two years.
- Macro-Economic Outlook
A discussion of what the global economy may look like two years from now.
- Stock Price Predictions
Predictions for where TSLA will be at two years from now.
- Attractiveness of Call Options
An evaluation of TSLA Jan'25 Call Options.
A summary of my recent options trades and some warnings.
1) Tesla in 2023 and 2024
- New US EV tax credit
- Price cuts to match demand with increasing supply
- Cost savings (4680s, castings, structural battery, lower commodoty prices)
- I have increased prices in Q1'23 in each model to account for the US EV tax credit. Tax credit will be $7,500, but I'm assuming a conservative $5k price cut in the US. So I've increased the price of MS+X by $2,500 (assuming 50% of volume goes to US), and by $2k for M3+Y, because so far this year about 40% of volume has gone to the US.
- To simplify, I've modeled any and all price cuts in Q2'23. The amount differs in each case. I'll talk about these in more detail later.
- To simplify, I've modeled all cost savings in Q3'23. I've kept these modest between $500-1k per vehicle, so between 1.5-3.5% of overall vehicle cost.
- Higher deliveries (mostly CT).
- Marginally lower MY price cut and slightly higher MY cost reduction, resulting in slightly higher MY margin.
- Higher CT margin and higher Semi margin.
- Negligibly higher energy revenue + profit.
2) Macro-Economic Outlook
- Ukraine war
- China/Taiwan uncertainty
- China's economy, which in and of itself consists of countless sub-factors
- Europe's economy, which is also driven by a lot of sub-factors
- Europe's energy crisis
- Europe's inflation, which is driven by many sub-factors
- US' inflation, which is driven by many sub-factors
- US politics, and politics of every single other country, especially the ones with big economics like China/EU where policy changes can materially impact the global economy
- Oil prices
- Every single smaller non-US/China/EU economy, although these are obviously smaller factors
- Job market
- Housing market
- Supply chains, which played a large role immediately post-COVID
- Geo-politics, which consists of every relation between every individual nation
- Crypto market, which is huge with many players. Look at the effect FTX's collapse had not only on the crypto market, but also on stock markets.
- Debt markets
- Overleveraged entities. Big part of, if not the cause of, the '08 financial crisis were overleveraged investment banks becoming insolvent. Recently, the UK almost went belly up due to overleveraged pension funds
- Social unrest/movements. The great resignation and lower labor force participation has influenced economies post-COVID
- Low birth rates, aging populations, and possible population collapse are undoubtedly going to influence economies at some point this century
3) Stock Price Predictions
- Realistic bear case of ~$6
- Base case of ~$8
- Bull case of ~$9.5
- Bear case of 50x
- Base case of 75x
- Bull case of 100x
- Bear case of ~$300
- Base case of ~$600
- Bull case of ~$950
4) Attractiveness of Call Options
|Naked Jan'25 Call Options
|Jan'25 Call Option Spreads
Looking at these tables, it is clear to me that, unlike at the end of last year, spreads are not attractive right now in comparison to naked calls. I've purposely erred on the side of caution in my predictions, and if the stock price even gets close to my bull predictions, naked calls will outperform spreads, let alone if the stock somehow surpasses those predictions. This is particularly extreme with the ITM calls, because a $100-610 spread will be less profitable than common stock if the stock price reaches my bull case. And the $150-610 spread will quickly go to breakeven. None of this should come as a huge surprise, because the $610 call is dirt cheap trading at $8.90.
As for the naked call options, the $200s stand out to me, because these calls will break even even in my bear case of $300 and they still hold >50% of their value @ $250. If the stock is $250 ~6 months before expiration, the $200s would probably be close to break even actually, because there would still be significant time-value (theta) left. So these $200s seem to have very low down-side to me.
|Naked Call Zoom 1
This isn't an exact science, but to me the $200s look ideal. Something like the $240s will offer slightly better returns, but I really like the low downside of the $200s and that they even hold value pretty well if the stock is somehow only $250.
|Naked Call Zoom 2
Lastly, if there is a near-term big spike in TSLA stock price, to say $400 after Q4 or Q1 earnings (not impossible imo). I personally would at the very least deleverage, potentially go so far as to go back to holding 100% TSLA common stock. In this scenario, $600s will vastly outperform any other call option due to the higher delta. Of course $600s will vastly underperform any other call option if the stock drops in the near term, but personally I'd plan to hold through that.
- I've lost on pretty much every short-term option trade I've ever made. Fortunately they were tiny (<1% of portfolio) and I stopped doing them as soon as I realised I cannot predict with much accuracy what the market will do in the next few weeks or months. The only exception to this was Tesla's S&P inclusion, when I had researched what would happen at a fundamental level for about a year, and I was highly confident short-term options would be profitable.
- As you may remember, I bought some options in August of 2021, which I talked about in My Tesla Investment Thesis 3. I also bought call spreads that I discussed in this post at the end of last year. I then bought more call spreads when the stock dropped further at the beginning of 2022.
I sold all of these in July-September of this year when the stock was $250-325. Because these were mostly spreads, I fortunately enough barely lost anything on them, but obviously I did not foresee the crash that happened this year, so I feel like I got away lucky. It's not like I used margin or risked the financial freedom TSLA has afforded me, but had I bought naked calls instead of spreads, I would've lost a non-negligible portion of my shares.
- I have already been accumulating Jan'25s since they were released in mid-September. I converted the last remainder of my Jun'23 calls and Jan'24 spreads to Jan'25 calls when the stock was >$300. I then added more when the stock was $245, $215, and as recently as $185. I am not worried about any of these options I've bought, but I am at the very least far from perfect at timing the market, perhaps even bad at it.