To The Moon

Elon Musk sold $6.9 billion worth of $Tesla Motors(TSLA)$shares which is about 7.92 million shares from Aug 5 to 9, according to the new filings. He now owns 155.04 million shares in Tesla.

He said it is to prevent an emergency sales of the shares in the event that the Twitter$Twitter(TWTR)$deal was forced through. If he sold only after the deal was force, that will cause the stock to plunge hard. By hyping the stock price and then sneakily selling his share, would result in him selling less shares to raise the needed cash.

Why sell if you are so confident in winning? And selling that much? It seems to suggest that Musk thinks there is a very good chance that he will be forced to acquire Twitter. 

I tried looking for what other lawyers think of this case, and I only manage to find 2, and they are both leaning towards Twitter. One of them is the view of Guhan Subramanian '98, a law professor from Harvard Law School. The other is the view of LegalEagle, a lawyer with 2.44 million subscribers on YouTube. Both thinks Twitter is going to win.

So with all the data I'm making a bet that Twitter will win. However, to play it safe, I devised a "safer" strategy for my bet. Going all out and buy call options, will give me the highest return of 200%, but it also has the highest risk of losing everything if things don't go according to plan. So, I sold deep out of the money cash secured PUT options instead. This gives me a maximum return of 8%, but even if Twitter were to lose the case, I could still earn money from it. How?

This is because the strike price of the PUT option I sold is $25, with a premium of $2.03. Which means that I will "lose" money only if the share price of Twitter drops below $23 ($25 - $2.03). This means that if Twitter wins and Elon must buy it for $54.20 per share, I earned 8% or $203 per contract. If Elon manage to get Twitter to settle for $50, $42, or any price above $25, I earned 8% or $203 per contract.

However, in the worst case that Twitter lose the case, so long the share price does not drop below $23 (42.5%), I will still earn some money. Thus, to me this is the most sensible trading strategy that accounts for the small chance of mishap.