Evening, hotel.
Zhang Qingxue When we returned to the hotel, it was already dark.
Zhao Chen and Su Wantang were waiting for her in the hotel restaurant. There were three untouched dinners on the table.
Zhang Qingxue sat down, put his coat on the back of the chair, picked up the water glass on the table and took a sip.
"How is it?" Zhao Chen asked.
Zhang Qingxue took out his notebook from his bag, turned to the pages he had written down in the afternoon, and recounted the quotations and liquidity conditions of the three investment banks.
Goldman Sachs has the largest quantity and the price is in the middle.
JPMorgan Chase has the most expensive price and the lowest quantity.
Morgan Stanley is somewhere in between.
"Overall," Zhang Qingxue closed the notebook,
"The total number of Call Options that can be traded on the market is only about 20 million shares.
But after filtering through conditions such as Strike Price, expiration date, and Premium, the total number of shares that can be purchased may not be 10 million."
Zhao Chen leaned on the back of the chair and tapped his fingers on the table twice.
Ten million shares. Less than he expected.
He originally planned to use Options to build a position of about 20 million shares, but now it seems that the market does not have such a large capacity.
"What about Strike Price?" he asked, "Which range are they mainly concentrated in?"
Zhang Qingxue opened the notebook. "It ranges from 300 to 350. Premium ranges from 10 to 20 US Dollar. It's much cheaper than in January."
Zhao Chen's brows moved slightly. Su Wantang said softly next to him:
"The current stock price is only about 270, Strike Price 300 to 350, is it too high?"
Zhang Qingxue also looked at Zhao Chen, obviously she had the same question.
Strike Price is 30 to 80 US Dollar higher than the current stock price, which means that Tesla needs to rise 11% to 30% for Options to enter the real value state.
In the current pessimistic market and unresolved production capacity issues, this increase seems out of reach.
Zhao Chen did not answer immediately.
He picked up the tea cup, took a sip, and then put it down.
The tea was a little cold, but he didn't ask the waiter to refill it.
"Wantang," he said, "What do you think Options is?"
Su Wantang thought for a while, "A right. Spend money to buy a future option."
Zhao Chen nodded:
"Yes. Options is not Common Stock.
When you buy Common Stock, you buy the company's current situation. When you buy Options, you buy the market's expectations.
It is precisely because the market is extremely pessimistic that the price of Options is so low.
Strike Price 300 US Dollar's call, Premium only needs 18 US Dollar.
This means that the market believes that the probability that Tesla's stock price will rise above 318 US Dollar is very low by January next year."
He paused and his voice slowed down a bit:
"But the problem is - we buy Options, not to exercise the option, but to hedge. Use a small amount of funds to lock a large amount of Risk Exposure.
If the stock price rises, the profit of Options will be magnified by leverage. If the stock price falls, the maximum loss will be Premium."
Su Wantang asked, "Then do you think the current Premium is worth it?"
Zhao Chen picked up Zhang Qingxue's notebook and carefully read the numbers written on it.
Strike Price 300, Premium 18.
Strike Price 320, Premium 15.
Strike Price 350, Premium 10.
He made a calculation in his mind.
If you buy the call of Strike Price 300, Premium 18 US Dollar, plus Strike Price 300, the total cost is 318 US Dollar.
The current stock price is 270, which means that he has to pay a cost of 18 US Dollar for the possibility that the future stock price will exceed 318.
If the stock price rises to 400, the profit per share is 82 US Dollar, and the leverage is 4.5 times.
If the stock price rises to 500, the profit per share is 182 US Dollar, and the leverage is 10 times.
It looks beautiful. But the problem is - the stock price needs to increase by 17.8% from 270 to 318.
What if he doesn't buy Options, but buys Common Stock directly? Common Stock has no time limit, and there is no Strike Price. As long as the company does not go bankrupt, the stock price will always come back.
Moreover, Common Stock has voting rights, dividends, and shareholder rights. Options has nothing.
Zhao Chen put down the notebook, leaned back on the chair, closed his eyes and thought for a while.
"Aunt Zhang," he opened his eyes, "If I buy Tesla Common Stock directly from Secondary Market now, how much can I buy for less than 300 US Dollar?"
Zhang Qingxue was stunned for a moment. "Common Stock?"
Zhao Chen nodded:
"Yes. Common Stock. Options's Strike Price is too high, and Premium is not cheap enough.
Common Stock priced below 300 US Dollar is more cost-effective than Options."
Zhang Qingxue thought for a while, "Tesla's daily average Trading Volume is about 10 million shares.
If we buy 500,000 shares every day, it will not have much impact on the stock price.
But if we want to build a position quickly, such as buying 10 million shares within a month, the stock price will definitely be pushed up."
Zhao Chen asked, "How far can it be pushed?"
Zhang Qingxue said, "It's hard to say. If the market sentiment is still so pessimistic, there will be a lot of selling orders. After we buy it, we may be sold down again soon.
But if the market starts to warm up, our buying itself will become a catalyst - others will see that others are continuing to buy and will follow suit."
Zhao Chen tapped his fingers on the table twice. He quickly calculated the pros and cons of the two options in his mind.
Options plan: Strike Price 300, Premium 18, total cost 318.
If the stock price rises to 400, the profit per share is 82. If the stock price does not rise, Premium returns to zero.
Common Stock plan: The current price is 270, buy it directly. If the stock price rises to 400, you will earn 130 per share.
If the stock price does not rise, he is holding real stocks and there is no time to waste.
The advantage of Options is that it has high leverage and takes up less funds.
The disadvantage is that the time window is limited, Strike Price is too high, and Premium is not cheap either.
The advantage of Common Stock is that it is simple and direct, with no time pressure. The disadvantage is that it takes up a lot of funds, and the buying process itself will push up the cost.
Zhao Chen thought for a while and said:
"Options of Strike Price is too high. 300 US Dollar of Strike Price, plus 18 US Dollar of Premium, the total cost is 318 US Dollar.
It is 48 US Dollar higher than the current stock price. This means that I have to bet that Tesla will rise to more than 318 within a year in order to protect my capital. This account is not cost-effective."
Su Wantang looked at him. "Then what are you going to do?"
Zhao Chen said, "Buy directly Common Stock.300 US Dollar or less, buy as many as you have."
He stood up, walked to the window, and looked at the night view of Manhattan.
"Common Stock has no time limit, and there is no Strike Price. As long as there are no problems with Tesla and Fundamentals, the stock price will come back sooner or later.
Moreover, if the stock price drops to 250 or even 200, I can continue Add Position to dilute the cost.
Options cannot do this - if the stock price does not rise after expiration, it will become waste paper."
He turned around and looked at Zhang Qingxue:
"Aunt Zhang, tomorrow you will talk to the three investment banks again, not about Options, but about Common Stock.
Ask them, if we want to buy 10 million shares of Tesla Common Stock within three months, what plan do they have.
Is it a large transaction, or is it slowly accumulating money through Dark Pool? In what range can the price be controlled?"
Zhang Qingxue jotted down quickly on his notebook, then raised his head:
"What about Options? Don't consider it at all?"
Zhao Chen thought for a while:
"Unless Premium can be reduced to below 10 US Dollar. Strike Price 300, Premium 10 US Dollar, the total cost is 310, which is 40 US Dollar higher than the current stock price.
If Strike Price 320, Premium 8 US Dollar, the total cost is 328, which is 58 US Dollar higher than the current stock price.
These numbers are still high.
But if Strike Price 300 and Premium fall below 8 US Dollar, and the total cost is 308, which is 38 US Dollar higher than the current price, you can also consider buying Options."
He paused and added, "But the current market quotation, Premium, cannot be bought.
Since you can't buy it, it's better to buy the underlying stock directly. The underlying stock priced below $300 is more cost-effective than options no matter how you calculate it."
Zhang Qingxue nodded. "Understood. I will go discuss Common Stock's plan with them tomorrow."
Zhao Chen said, "One more thing - you should talk to Michael Chen again tomorrow. You don't need to talk about the specific transaction, just ask a question."
Zhang Qingxue looked at him.
Zhao Chen said, "Ask him how old Tesla's Short Position is now.
Are Short Sellers still at Add Position, or have they already started to close their positions? This data is more important than the Options quotation."
Zhang Qingxue nodded. "Okay. But I guess he can only make a rough estimate."
Zhao Chen walked back to the table, sat down, and picked up the cup of cold tea.