To The Moon

On Friday, Tesla's stock surged more than 5%, bringing its year-to-date gain to over 56% and pushing its market cap to $1.25 trillion. As Tesla’s stock price soars, Elon Musk’s net worth has reached a new milestone. According to the Bloomberg Billionaires Index, Musk's net worth hit approximately $362 billion at Friday’s close, a $133 billion increase year-to-date, making him the wealthiest person with the greatest wealth gain this year.

One notable factor behind Musk’s skyrocketing wealth is the connection to Donald Trump’s election victory. Since Trump’s win, Tesla’s stock has risen nearly 55%, adding over $440 billion in market value. According to filings released by the U.S. Federal Election Commission on the evening of December 5, Musk donated $259 million (approximately RMB 1.883 billion) to groups supporting Trump’s 2024 campaign, making him one of the largest presidential campaign donors in U.S. history.

Analysts suggest that Musk has placed all his bets on Trump’s victory, which explains why markets view Tesla as a beneficiary. Under a Trump administration, regulatory rollbacks favorable to Tesla could be expected. Recently, investment banks such as Stifel and Bank of America raised their target prices for Tesla.

On December 5, local time, Bank of America analyst John Murphy visited Tesla’s Gigafactory in Austin and raised Tesla's target price from $350 to $400 while maintaining a “Buy” rating. Murphy’s report stated that the visit reinforced his confidence in Tesla’s growth prospects, citing the company’s core EV business, upcoming autonomous taxi products, and long-term investment in Optimus (Tesla’s humanoid robot) as key drivers post-2025.

Historical Patterns and Risk Mitigation

Historically, Tesla’s sharp rallies have often been followed by periods of correction. For investors concerned about potential short-term pullbacks after Tesla’s surge, a collar strategy can be an effective way to hedge against downside risk.

What Is a Collar Strategy?

A collar strategy combines protective puts and covered calls. It involves:

1. Buying a put option to protect against downside risk.

2. Selling a call option to offset the cost of the put.

This effectively places a "collar" around the stock's price, limiting both the potential upside and downside. The strategy is particularly useful for investors who are bullish on their stock holdings but want to protect against significant losses. A zero-cost collar occurs when the cost of the put option is fully offset by the premium earned from selling the call.

Example of Tesla Collar Strategy

Suppose an investor holds 100 shares of Tesla, currently priced at $389.22, but is uncertain about the stock's near-term movement. To hedge this position, the investor could use a collar strategy as follows:

1. Sell a call option with a strike price of $440, expiring on January 3, for $10.41 per share, earning $1,041 in premium.

2. Buy a put option with a strike price of $355, expiring on January 3, for $10.29 per share, costing $1,029.

The net cost for this strategy is just $12.

Outcomes of the Strategy:

• If Tesla’s price falls below $355, losses are capped, as the put option locks in the downside protection.

• If Tesla’s price rises above $440, profits are capped at the strike price of the sold call.

• If Tesla remains between $355 and $440, the stock can fluctuate without any additional significant cost.

This example shows how a collar strategy allows investors to protect their gains while mitigating downside risk. Once the short-term volatility subsides, investors can unwind the strategy and pursue directional trades, such as bullish or bearish positions, based on Tesla’s upcoming earnings reports.

In essence, a collar strategy gives investors the ability to safeguard their "wins" and shield themselves from risks, enabling more flexibility in managing Tesla’s market fluctuations.