As many of you know, I also like buying Tesla LEAPS. Check some of my earlier LEAPS videos
if you don't know what they are, or my investing strategies for them. But for those of you
already in the know, and who are also investing in LEAPS, then I thought I would just give
an update on where I am now, as we have seen a sizeable movement in the stock as of recent.
My LEAPS I bought earlier this year, some are now well over 100% return. So before when
I was showing all of you how and why I was buying them when the stock price was in the
5 and 600s, well know you can actually see the end result, and the power of leverage.
Except this is just the start of it. My LEAPS are in the money now. Now the stock price
only has to increase about 20% for me to gain another 100% return. This is when it starts
to get much more fun.
If the stock goes up another 50% then I will have something like 4 to 5 times return on
some of my LEAPS. For those of you who buy on margin, you would have had to have had
some serious leverage to receive those returns. Which would have been highly risky, I am not
sure how many trading accounts even let you buy on margin that high. I don't buy on margin,
its never been my strategy, as its a way that you can lose everything, and be wiped out
of Tesla. I have a rule, never risk not being in Tesla!
Ok, so I doubled my money in the space of a few months, what now? Do I sell, and wait
for a dip? And then re-buy cheaper, taking profits. Well as a lot of you know, I bought
these LEAPS to hedge todays price in a couple of years, when I can afford to buy more shares.
My strategy was not to trade. I don't offer any trading advice, the statistics
clearly point to your chances of getting the best return are from investing long term,
not trading. Human psychology may fight against you, but resist the urge to sell and take
profits, if you want the best chances of getting the highest return. This is not financial
advice, this is me just stating statistical facts. Again the saying time in the market,
beats timing the market, will always ring true. Compounded returns, oh except its Tesla,
so exponential compounding returns. Don't risk missing out on that, I have seen it plenty
of times.
Anyway, what now? So I will explain some strategies of what you can do now if you are holding
LEAPS, and what you can do to buy more LEAPS or get into LEAPS for the first time, and
I will tell you what I plan on doing. But please leave your comments and tell me your
LEAPS strategy too. LEAPS are not covered much, this might even be the largest Tesla
LEAPS community in the world. So please share your stories and strategies so we can all
learn too.
Now for most people when you sell your LEAPS your are subject to tax. I said sell, not
exercise. But not everyone is, depending on what tax your subjected to, or what type of
retirement account you might have. Now if you still have a year or so, or even more
left on your LEAPS, and you plan on exercising your LEAPS when the expiration date comes,
and you are not subjected to tax, and if you have sufficient capital available to exercise
them. Then one strategy that may be better for you, will be to sell your LEAPS, and buy
shares.
You see there is still a premium on your LEAPS, due to the expiry date being so far out, there
is value in that. As you get closer to your expiration date, this value will continue
to diminish. For example if you have $700 strike price for your LEAPS, and I am just
using basic numbers in this example, not actual market numbers, to keep it simple. Well right
now, your LEAPS are about $200 in the money. Yet you could possibly sell them for $300.
If you were to exercise these LEAPS right now, it would cost you $70,000. And if you
bought the equivalent in shares it would cost you $90,000. Let's just say the stock price
is $900. Well if you sold your LEAPS you would get $30,000, as we said they had a market
value of $300, despite only an intrinsic value of $200. So you have $30,000, and then you
only need an extra $60,000 to buy 100 shares. i.e. this means you pay $100 less per share.
Even if you do have some tax to pay on LEAPS, purchasing shares might still be cheaper for
you than exercising.
However, in that scenario you run into an opportunity cost. Which is why I clearly said,
if you have sufficient capital to purchase the shares anyway, in the above example. Yes
opportunity cost, if you are buying shares, then that means you have less capital to invest
in LEAPS. Rather than purchase 100 shares, you could always buy 3 or 4 LEAPS contracts
and control 3 or 4 times as many shares.
I am back in the market for more LEAPS. Despite this latest stock price increase, we have
new information that has come to light. It's mainly 2 things that have made me more bullish
right now. This insane ramp up happening in China, I am surprised investors are not making
a bigger deal over it. The Chinese October numbers are going to be very telling, if they
are as good as I am hoping, then I am going to have to find some more strategies of accumulating
more LEAPS. And I bet when they are announced, even if they are as good as I hope, that the
stock price will barely move. The market wont understand what it really means.
The other main factor is these automotive margins. It won't take long until we are up
to 40%, whether it takes a year or 3, it doesn't matter, there is a clear path to achieve that.
Tesla has no demand issue whatsoever, the prices are still increasing across all models.
And there is no competition coming to squeeze margins.
And then the fact that ramping up will then start to see the economies of scale finally
kick in, means operating margins will reach unbelievable levels. And bear in mind, as
high as these margins are they still include stock based compensation, and depreciation.
Yea, I know the price has risen 20% or so lately, or more. But so has my confidence,
conviction and faith in the potential of this company. In fact I am thinking Tesla can be
a lot more of a company now, than I thought just a few months ago. And this might be a
theme with Tesla, continually blowing my mind. Just wait until we see what comes off the
production lines of these new factories, and how fast and low cost too.
We haven't even got 4680 batteries in the cars yet, alone Tesla's LFP batteries. Wake
up! We are still at the start of the S curve. Every cent I make ends up in Tesla and Bitcoin.
It's frustrating, not having enough money to invest when you know its going to go up
10 fold in the near future. Well that's the reason I have no money as I put it all in.
But I think I need to start selling shares again to buy LEAPS.
I usually wait for a dip, to buy LEAPS, but what if this is a dip. How can the stock price
increase in a dip? Because dips are relative. Relative to the value of the company to the
value the market assigns. This might actually be a dip. In other words, I am still going
to buy at the all time high. I am sure these prices will look cheap in 2 years time.
However, I think this time I might dollar cost average. I think I will buy one or two
contracts, and leave some funds available for 1 or 2 more, if the stock price dips back
into the 800s. 800 is the new 600.
But how am I going to find the money to exercise all these LEAPS. Well I have about a year
or two to scrape enough funds together to exercise these LEAPS. I am not sure this Youtube
channel will be successful enough to cover that cost. However, my house has gained a
lot of equity as of recent too. If I can earn enough from this channel, to increase my income
enough to apply for a larger mortgage, then I can cover the cost of exercising then.
Now hold on, that is sounding highly risky right? Well just think for a second. Why would
I exercise them in the first place? Because the stock price is $2,000 and I can buy the
stock still at $7 to 800. I borrow $75,000, but have an asset worth $200,000. Not to mention
the rest of my Tesla portfolio is doing pretty well. In fact my entire house at this stage
would be looking like a relatively small asset against my shares. So I am comfortable doing
this. I also have income aside from this channel.
But this is my financial position. Yours is different, I just like to talk about what
I am doing and share with you, I never suggest you do it. I mean you never know, I might
have a wealth father, who would still look after me if I lost everything to fall back
on. We all have different situations and levels of risk we are comfortable with. Like I said
I am not comfortable with the risk of buying on margins.
But this is Tesla, and we haven't had much FUD lately, surely there might be some on
the way. Yes, most likely, and I think if anything major hits the fan, then I am quite
possibly going to change my Tesla portfolio, and have a higher percentage of my portfolio
in LEAPS rather than shares. This company is going to big, the biggest ever.
On top of that there are plenty of macro economic factors that could come into play. China is
starting to show signs of cracks in their despotic growth. Yes, despotic growth, it
starts out good, until it doesn't. Just like we say with Soviet Russia. But who knows,
I guess we will see, its crazy how the economies of some nations survive, Japan.
But these macro factors are affecting the implied volatility. Implied volatility is
the other element that affects the price options or LEAPS. If there is less confidence in the
market outlook, and we see events like ever grande unfold, then the implied volatility
will get worse, which means the price of options will come down.
Anyway, exciting times as always with this company, I just want to own as much of it
as I can. Like most you.