It has been almost 10 years since I first sell put $Tesla Motors(TSLA)$ and it will continue to be my sell put target for the next ten years.
Today I want to analyze why $Tesla Motors(TSLA)$ is a good choice to sell put.
To learn more about sell put, you can click Options Insights III: What is Cash-Secured Puts (TSLA, QQQ, PDD)
Here is a screenshot of my $Tesla Motors(TSLA)$ sell put orders over the past year or so:
$Tesla Motors(TSLA)$ 's stock price is a roller coaster, from $500- $1200-$620-$800.
You can tell from the two charts that the sell put strategy provides a good margin of safety.
Even stock price plunges from $1200 to $620, I am still making money. Here is the advantage of sell put strategy I mentioned before: fault tolerance.
To learn more about advantages of sell put, you can click Options Insights VI: The Advantages of Cash-Secured Puts.
Why is Tesla a Good Target for Sell Put ?
1. The Trend of Times
It is an inevitable trend that new energy vehicles will replace traditional cars. Therefore, Tesla's future has more potential.
2. Basic underlying valuation
It doesn't matter whether $Tesla Motors(TSLA)$ is worth $1200 or $500 (but if you buy call/put, you surely care about it).
When investors sell put, the most important concern is that the stock won't plunge to $0-- the stock has an underlying value/valuation. Otherwise, the large price gap between strike price and market price will cause huge losses when you are forced to buy the underlying shares.
- How do we calculate its valuation?
We can use Tiger app to do fundamental analysis and look at its revenue and income.
click the ticker → enter its interface → click the "Company" → click "Financials " → find "Total Revenue"
Total revenue: It has very healthy fundamentals.
Let's look at its net income:
again, click the ticker → enter its interface → click the "Company" → click "Financials " → find "Net Income"
It has a good income growth and net margin.
EPS Estimates:
- Based on its EPS estimates, we can calculate its valuation:
For example, I sell put $Tesla Motors(TSLA)$ at $ 400 next year, corresponding to PE = 400/15.93 = 25.1.
This valuation is more reasonable, I am willing to buy $Tesla Motors(TSLA)$ with 25x PE, which is a global leader in new energy vehicles. If I buy at $500, this means I buy Tesla at 30x P/E.
3. High transparency
I think investment really needs transparency. Individual investors are far from the inside of the company, there is a large information gap.
The transparency of the new energy vehicles is very high. Sales are announced every month and the company has no way to hide the bad/weak fundamentals.
4. High iv = high returns
Tesla has a big long/short divergence, so it has a high volatility, i.e. high iv.
So when will I stop sell put $Tesla Motors(TSLA)$ ?
1. Forward P/E valuation is too high when share price rise too high.
2. Deteriorating fundamentals.
a) a serious decline in sales (excluding the accidental factor of the pandemic)
b) the emergence of strong competitors and has generated a substantial threat to sales figures, financial data.
Bottom Line
Finally, my long-term view of Telsa sales in China: Telsa will still be industry leader in recent years. In the medium and long-term, local brands in China will exceed Telsa (so there is a huge investment opportunity.)
To learn more about my series for beginners- Options Insights, you can click:
Options Insights III: What is Cash-Secured Puts (TSLA, QQQ, PDD)
Options Insights IV: The Downside of Cash-Secured Puts
Options Insights VI: The Advantages of Cash-Secured Puts
Options Insights: Criteria For Selecting Long-Term Target & Recommendations
Options Insights II : Why choose QQQ over SPY?
Options Insights: A Good Time to Sell Put of TSLA & TENCENT Now
Options InsightsⅤ: Why GOOG is a good choice for sell put?
Options Insights VII: How To Trade Apple After Its Earnings?
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