"Lawyer Lin said, the procedure to buy Put Option is very simple, no approval is required, and you can operate it if you have money in your account."
Zhao Chen put the phone on the coffee table and leaned on the back of the sofa, "The key is which Strike Price to choose and what expiration date."
Su Wantang asked, "What do you think?"
Zhao Chen thought for a while and organized the language.
"Strike Price choose the actual value. It will expire within three months."
He paused and continued, "Elon Musk's tweet pushed up the stock price, but if the privatization fails, the stock price will fall back to the level before the tweet.
The stock price before the tweet was probably between 340 and 350.
If we choose Strike Price 360 or 370 Put Option, the stock price is already near this position. Options has intrinsic value. Although Premium is more expensive than Out-of-the-Money Options, the certainty is higher.
If the privatization fails and the stock price falls to 340, these Options will become Deep In the Money, earning considerable profits.
If the privatization is really completed and the stock price is acquired by 420 US Dollar, the Premium loss of Options is controllable, and the Common Stock gain will cover it."
Su Wantang did not interrupt and listened quietly.
"Choose the expiration date within three months. One month is too short, and the privatization matter cannot be resolved within a few weeks.
But it cannot be delayed for too long - the capital market has no patience, and the SEC will also intervene. In a month or two at most, the matter will become clear.
Three months is enough to cover the entire process."
Su Wantang said softly, "Didn't you say that there is a high probability that privatization will not succeed?
Then why not choose the cheaper Out-of-the-Money Options and maximize the leverage?"
Zhao Chen looked at her and was silent for two seconds. "Because I don't want to gamble."
Su Wantang did not ask further questions.
Zhao Chen's voice became calmer. "Out-of-the-Money Options's Premium is cheap and has high leverage, but the risk is also high.
If the privatization takes longer than I expected, or if the stock price fluctuates sideways in a certain range, Time Value will slowly disappear.
In the end, even if the privatization fails and the stock price does not fall deep enough, Out-of-the-Money Options may return to zero.
The real value Options is different - it has intrinsic value. Even if the privatization does not fail in the end and the stock price does not plummet, the real value Options can at least recover part of the principal.
I don't want this to be a gamble. I want certainty."
Su Wantang looked at him without saying anything, but there was a very soft light in her eyes.
Zhao Chen continued, "Moreover, Options is just a hedge, not the main position. Common Stock is the big position.
16.6 million shares of Tesla, cost 292.8 US Dollar, current stock price is around 380, floating profit exceeds 1.4 billion US Dollar.
I used tens of millions of US Dollar to buy a Put Option, not to make money, but to prevent the retracement caused by the collapse of the stock price after the privatization failed.
This is insurance, not leverage. Insurance does not need to pursue the highest return, it needs certainty."
He picked up the mobile phone on the coffee table and read the message from Lin Shicheng again.
Goldman Sachs is quoting. Once the number of Premium comes out, we can decide how much to buy.
"The idea of insurance is right." Su Wantang said.
Zhao Chen nodded and put down the phone.
"The probability of successful privatization is not high. But the capital market does not look at probabilities, but at expectations.
Elon Musk said 'the funds have been secured', the market believed it and the stock price rose.
When the market discovers that the funds are not fully in place at all, when the SEC starts investigating, and when Board of Directors starts to hesitate, it is expected to reverse and the stock price will fall back.
We don't need to know whether the privatization will be successful or not, we just need to know that the current stock price contains the expectation that the privatization will be successful.
If this expectation is falsified, the stock price will fall. Put Option is used to hedge this risk."
Su Wantang said softly, "You analyzed it very clearly."
Zhao Chen smiled. "I don't know for sure. I can only figure it out. For the rest, I'll wait for the quote from Lawyer Lin."
Su Wantang didn't say anything more.
She just sat quietly next to Zhao Chen, waiting with him.
The night outside the window is thick, and the only sound in the room is the low hum of the air conditioner.
The mobile phone screen on the coffee table goes dark and bright, bright and dark again.
Zhao Chen was leaning on the sofa, eyes closed, and the numbers were still spinning in his mind--
16.6 million shares of Common Stock, with a cost of 292.8 US Dollar, a market price of 380 US Dollar, and a floating profit of 1.4 billion US Dollar.
If you buy Put Option, Premium will cost tens of millions of US Dollar.
If the privatization fails and the stock price falls back to 340 US Dollar, Common Stock's floating profit will shrink by about 660 million US Dollar, but Put Option's income can make up for part of it.
If the stock price falls deeper, Put Option's gain will even exceed Common Stock's loss.
If the privatization is successful and Common Stock is acquired for 420 US Dollar, the floating profit will exceed 2 billion US Dollar, and the Premium loss of Options can be completely ignored.
Beijing trading resumed at 3.45am at Tesla time.
US Stocks entered the last trading session of the day, and Tesla selling orders began to pour in.
Those short-term funds that bought before the suspension and made huge profits after the resumption of trading began to take profits.
The stock price dropped from 379 US Dollar to around 376 US Dollar, but the increase throughout the day still exceeded 11%.
Zhao Chen was leaning on the sofa, his phone was on the coffee table, and the screen was still on.
He has been sitting on this sofa for more than an hour, from two o'clock in the morning to almost four o'clock in the morning.
Shan City's night is very quiet, so quiet that you can hear your own heartbeat.
The phone vibrated. "Lin Shicheng" was displayed on the screen.
Zhao Chen answered the phone and pressed speakerphone. "Lawyer Lin."
"Mr. Zhao, Tesla just closed, the price is 378 US Dollar. The increase throughout the day exceeded 11%. The market's expectations for privatization are very high."
Lin Shicheng's voice had a professional calmness, but his speaking speed was a little faster than usual.
"After-hours news is still fermenting, someone from Saudi Sovereign Fund came out to express their opinion, saying that they are optimistic about the long-term value of Tesla."
The market now generally believes that the probability of privatization being successful is not low."
Zhao Chen said nothing, waiting for Lin Shicheng to continue.
"Goldman Sachs, JPMorgan Chase, and Morgan Stanley all gave quotations."
Lin Shicheng said, "Put Option of Strike Price 350 expires in one month, and Premium quoted 8.5 US Dollar."
It expires in three months, and the price is 12.8 US Dollar.
For Strike Price 340, the one-month expiry quotation is 5.2 US Dollar, and the three-month quotation is 8.1 US Dollar."
Zhao Chen asked, "What is their attitude?"
Lin Shicheng said, "Very positive. Very positive."
Zhao Chen's fingers tapped lightly on the armrest of the sofa.
"How positive is it?"
"Mr. Zhao, Options traders at several major investment banks generally believe that Elon Musk is serious this time.
The funds have been secured, Saudi Sovereign Fund has expressed its stance, and Board of Directors is said to also support it.
Under this expectation, Put Option is likely to be a piece of waste paper. Selling Put Option to them is a sure-profit business.
They lowered the price of Strike Price slightly, and the margin of safety is higher. Buying Put Option now is money for nothing for them."
Zhao Chen Close your eyes, your mind is spinning rapidly.
Investment banks are not fools.
They are willing to actively sell Put Option, not because they are optimistic about the buyers of Put Option, but because they think this transaction is a sure profit.
Elon Musk's privatized tweet, Saudi Sovereign Fund's statement, Board of Directors is said to support--
All this information is added together, and the market consensus is forming:
There is a high probability that the privatization will be successful, and the stock price will only rise but not fall.
In this case, Put Option is useless paper.
The value of Put Option sold to Era Vanguard for tens of millions of US Dollar will return to zero after maturity. These tens of millions of US Dollar are pure profits.
Several major investment banks flocked to it, not because they were easy to talk to, but because they thought the money was so lucrative.
"Mr. Zhao," Lin Shicheng's voice brought Zhao Chen back to reality, "I need your decision."