He figured it out.
First of all, the probability of Tesla being privatized is low.
He knows Elon Musk.
Elon Musk is more impulsive than rational when tweeting.
He said that "the funds have been received", but Zhao Chen Previous Life had read those follow-up reports - the funds were most likely not fully implemented.
That was a casual tweet sent while waiting for a flight at the airport. It had not been discussed by Board of Directors, had not been subject to legal review, and had not even been formally finalized with any investor.
When this wave of emotions passes and the market calms down, the truth about privatization will emerge bit by bit.
The funds are not fully in place, and the investment letter of intent for Saudi Sovereign Fund is just a letter of intent, not a formal commitment.
Board of Directors will object, Major Shareholder will hesitate, and supervision will intervene.
Eventually, this farce will end with Elon Musk announcing that it will give up on privatization.
What then? There is no doubt that as the stock price rises, it will fall back.
Those investors who were chasing highs and bought in response to the privatization news would sell like crazy after Elon Musk announced that it had given up.
The stock price will fall all the way from the high point close to 380 US Dollar, back to the level before the tweet was released, or even lower.
But for him Zhao Chen, this is not a risk, it is an opportunity.
Common Stock He won't sell one share.
There are 16.6 million shares of Tesla, and the holding cost is 292.8 US Dollar. Even if the privatization fails and the stock price falls below 340, he will still have a floating profit and can still hold on.
But since he knows that the stock price will most likely fall back, why not take advantage of this fluctuation to make a fortune?
Buy Put Option to hedge the risk of falling stock prices and even profit from the fall.
If the privatization is successful and Common Stock is acquired for 420 US Dollar, the Premium loss of Put Option will be negligible, because the profit of Common Stock will cover all costs.
If the privatization fails and the stock price plummets, the income of Put Option will make up for the retracement of floating losses of Common Stock, and may even generate additional profits.
Regardless of the outcome, he remains invincible.
Zhao Chen opened the quilt, put on pajamas, and walked out of the bedroom.
It was very dark in Living Room, with only the street lights outside the window shining through the gaps in the curtains, casting a blurry band of light on the floor.
He didn't turn on the light, fearing that the light would be dazzling.
He walked to the sofa and sat down, put his cell phone on the coffee table, crossed his hands behind his head, leaned against the back of the sofa, closed his eyes, and went through the logic he had just thought about in the bedroom again in his mind.
The bedroom door opened slightly.
Su Wantang walked out in pajamas, her hair spread over her shoulders, and her face still looked sleepy.
She stood at the entrance of the corridor and saw Zhao Chen sitting alone in the dark Living Room. She came over and sat down next to him. "What's wrong?"
Zhao Chen told Lin Shicheng about the phone call.
Elon Musk's tweets, Tesla's suspension, news of privatization, and his judgment on the matter--
There is a high probability that the privatization will not be successful and the stock price will fall back.
Su Wantang After listening, he was silent for a while and only said one sentence, "Do what you want."
Zhao Chen turned to look at her. Living Room It was very dark, but he could see the light in her eyes.
That kind of light is not excitement or nervousness, but a very firm trust.
Su Wantang This person never asked him "Are you sure?" "What if you are wrong?" "How sure are you?"
She just said - do what you want. This sentence made him more at ease than any suggestion.
He picked up the mobile phone on the coffee table, flipped to the number Lin Shicheng, and dialed it.
The phone rang once and was answered. Lin Shicheng had obviously been waiting.
"Lawyer Lin, I have an idea."
Zhao Chen's voice is much clearer than before,
"I want to buy Put Option of Tesla to hedge against the risk of the stock price falling if the privatization fails."
Lin Shicheng did not interrupt him.
Zhao Chen continued:
"Elon Musk's privatization tweet pushed the stock price up. But if the privatization did not happen in the end, the stock price would fall back.
I need to use Put Option to hedge the floating profit retracement of Common Stock. Can I just buy Put Option directly?"
Lin Shicheng was silent on the other end of the phone for two seconds, and then began to explain, speaking neither fast nor slow, like giving a lecture in a classroom.
"Mr. Zhao, there is no problem in buying Put Option.
You only need to select Strike Price, expiration date, contract quantity, pay Premium, and you will get the right to sell Tesla stocks at Strike Price within the specified time.
This is the most direct hedging tool on the market and does not require any approval procedures. As long as your account has sufficient funds, the dealer can execute it at any time."
Zhao Chen asked, "Strike Price How to choose the expiration date?"
Lin Shicheng said:
"Strike Price Depends on how much you expect the stock price to fall.
If you think that after the privatization fails, the stock price will fall back to the level before the tweet-about 350 US Dollar-
You can choose the virtual value Strike Price 340 or 350 Put Option.
Premium is lower, but the stock price needs to fall below Strike Price to generate profits.
If you want stronger protection, you can choose the real value Put Option around Strike Price 380, Premium is higher, but you can make a profit if the stock price drops slightly."
Zhao Chen didn't answer immediately, Lin Shicheng continued.
"The choice of expiration date depends on your judgment of the privatization process.
If you think the matter will become clear within a few weeks, choose a contract that expires in one month.
If you think it will take several months, you can choose a three- to six-month contract.
The longer the period, the higher the Premium, but also the greater the room for error."
Zhao Chen thought for a while. "What about the cost of Premium?"
Lin Shicheng said:
"This depends on two factors. First, the current position of the stock price. Second, Implied Volatility.
After the privatization news comes out, Tesla's Options Implied Volatility will definitely surge sharply.
I am familiar with the Options traders over there at Goldman Sachs. If Mr. Zhao decides to operate, I can ask them for a quote first."
Zhao Chen was silent for a few seconds, and then said:
"Lawyer Lin, please help me contact Goldman Sachs and ask them to quote. Strike Price is between 350 and 380, and the expiration date is one month to three months.
I need enough contracts to hedge the downside risk of 16.6 million shares of Common Stock.
According to the normal practice of Options trading, when hedging the Common Stock position, Options is usually allocated at a ratio of 1:1--
Every 100 shares of Common Stock corresponds to 1 Options contract, and 16.6 million shares correspond to 166,000 contracts."
Lin Shicheng said, "Understood. Mr. Zhao, there is one more thing - it is recommended not to buy the entire position at once.
You can build a warehouse in batches, so that Premium costs will be more controllable."
Zhao Chen said, "You make arrangements."
Lin Shicheng said, "Okay. Mr. Zhao, one more thing - if privatization really happens, Put Option's Premium may be completely lost.
But the income from Common Stock will far cover this cost. If privatization does not happen, the income from Put Option can hedge against the drawdown of Common Stock.
No matter what the outcome is, your risk is controllable. I will communicate with Goldman Sachs first and report any news to you as soon as possible."
Zhao Chen said, "Okay. Thank you for your hard work, Lawyer Lin."
The phone hangs up.
Zhao Chen is sitting on the sofa, still holding the mobile phone in his hand.
Su Wantang sat quietly next to him, waiting for him to speak.