Closing the Tesla Bankruptcy and Option Market Loophole

It occurred to me that I needed to clarify my thoughts on Tesla’s eventual bankruptcy and the obvious reason why it has not occurred.

The answer is below. Tesla’s Z score, a bankruptcy prediction model that would have saved investors from Enron, since it updates in realtime due to having a market component, attributes essentially all of the positive value of Tesla to its stock price.

The score has lost relevance to some, and partly it is just that money printing has run rampant since the financial crises, that even the professor Altman, had acknowledged its loss of efficacy.

In either case, Tesla’s z score is is precarious and implies significant bankruptcy risk, so that’s that.

Screenshot 2017-10-26 14.12.09.png


As for the options, Which firm bought  at least 32,000 of the January 2019 50 puts? 

Let’s put that though in context. What does 32,000 puts actually mean. Each put signifies hte right of of hte protection buyer to sell 100 shares. Therfore it is implied that 3.2 million shares of shares would need to be sold at 50 dollar price in theory should Tesla breach that level at expiratioin in Januart of 2019. Screenshot 2017-10-26 14.25.33.png

It is simple enough to see how that line is particularly outstanding of all the options but that veiw is a little muddy. Let’s look at it in 3 parts.

Yesterday I pointed out how the volatility is different by strike.

Screenshot 2017-10-26 14.42.14

well, there it is. the tail up is bankruptcy hedge caused by those 32,000 puts which would equate to 3.2 million shares at that price. But those are not all the puts that are there.

The 32,000 puts at 50 have company at 100 in amount that is half the size.

But there might be trick to this, but not worth our time. We have no idea what this individual firm or firms are up. Forensically one can piece back together the option trades and take a guess but that is not that point. One would have to piece together things that are known, such as all the option open interest for every month, put or call. But there could be unkown options trades off the books, on other exchanges, and other continents. The point though is should Tesla begin to collapse, these trades all begin to take on a life of there own. What might be also instructive therefore is to know just how many puts are there in the US public markets for Tesla in 2019.

Screenshot 2017-10-26 14.46.32

The number is : 141,484.

In gross share terms, this total is 14 million shares or nearly 10 percent of Tesla’s float.

This of-course understates the real total. The options market has therefore probably been setting the price. In a twist, it might not be that Tesla’s stock price is a derivative financial performance of the company, but the trading performance of the speculators on its options. Tesla’s stock price is not Tesla’s business. But Musk has skillfully used it to keep his company alive. Might Musk be friends with these specualors (Fidelity and un-named hedge funds ) in their trading extravanganza’s.

How does this relate to z score?

The moment it becomes obvious Tesla’s charade of pretending to be viable entity is up, whether, through the deterioration of its business to truly explosionary and default status as measures like the z score predict, the financial market could literally eat itself trying to find the shares to net out all the derivative bets. Of-course, arguable Telsa has been eating the financial markets and governments like a blood sucking vampire since its existence.





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