Lidar is a total nonstarter for mass production. You can put it in a 1,000 vehicle Waymo fleet but the economics at mass production scale simply don’t work.
(if you've not seen the article on Seeking Alpha entitled "Options Trading Drives Tesla's Stock Price", cannot recommend it enough)
this year we've seen 3 discrete massive moves in the stock: 1) late Apr after earnings, 2) week 1 in July, and 3) Aug 6-10 (or thereabouts).
all 3 have the hallmarks of a gamma squeeze. and when you do some back of the envelope math (in a sec), it seems *very* likely gamma squeezes are pushing this thing up.
* current open interest in tesla options is ~ 7-8MM. notionally, thats 700-800MM shs
* while puts and calls would cancel out if the P/C ratio were 1, with Tsla its .6 P/C ( a notable distinction as most stocks its > 1)---which is to say the option market is structurally long calls.
(700M* .4 = 280MM shs notional length via calls in the option market)
* delta adjust the aforementioned 280M by a delta factor (lets be conservative as deferred options have deltas congregating ~ .5), so lets just .4, or 112MM shs delta adjusted length via the option market. ---not a big # relative to the float of 3.5B, but its a damn big # vs daily volume.
* any big buy move in near-to-expiry ATM calls (where gamma is highest) will trigger the gamma squeeze. for it to work, need to see a lot of open interest in the strikes ATM, and ideally not a lot of stock liquidity (ie holiday week).
of course, we dont know what a market maker has on their books, but we do know they sell volatility and delta hedge and given the p/c ratio biased towards calls, they're a structural buyer of tsla if the market is structurally long calls---aggravating every price move higher, but happy to see (and help) it oscillate so they can bank the vol and OTM options expire worthless.
what does the above mean?
1) there's 2 markets for tesla: one for the stock (for which fundamentals SUCK as brad makes clear), and one for the option market, for which the only fundamentals that matter are A) volatility and B) liquidity. (i see nothing short of a complete wipeout in tesla changing this)
2) the 2nd market, the option market, can and does drive tesla's share price at times (and at times like the Q1 earnings squeeze, i'd bet elons family office was behind it). this means there's an ever-present risk of a gamma squeeze for shorts. --makes position sizing critical.
3) volatility cuts both ways. it will go up and down so long as A) fundamentals suck and B) the open interest remains massive with structural bids on the call side to delta hedge when the tail (options market) wags the dog (stock market). ---this is the perfect formula for volatility: Bears (fundys) vs Bulls (net call length with liquidity & volatility to monetize)
knowing this, i'd say be careful around event risk and weeks with high open interest & low aggregate market activity (like a holiday week ala 1st week in july) for subsequent gamma squeezes. last week had just < 0.5MM OI for weekly DTEs (vs 1+MM for first week of july), and it still got squeezed higher on Fri after jackson hole---and i'd note the market makers pinned the close at 220, just as one would expect if they wanted to wipe those long that strike.
Brad, I think you made a small mistake on Gary Black’s last point. He wrote “Delaware Supreme court” decision in 2025 and you’re referring to judge McCormick’s decision which will be in 2024, opening then the possibility for Tesla to go to the Delaware Supreme Court.
Otherwise great article, as always, keep them coming.
Lastly a question, when you look at the RSI for your >70% and <30% thresholds, on what time period is that? Are you using the daily ones, 5 minutes or 1h or what? That information is missing.
Hi Andreas, I use the RSI (14) when looking at the chart. Right now, it's at 46.8, so neither here nor there, but for some reason the stock is selling off on smaller than average volumes.
Just curious, what parameters do you use for the RSI indicator? On Yahoo, it ask for "period" (number of days) and "field" (close, high, open, ...), it probably gives slightly different results with different parameters, I would assume....
Does HW4 include lidars and radars?
No amount of computer power will make a computer vision only solution miraculously work.
Musk stopped using lidar years ago because they were too expensive and I believe he took out a lot of the radars to cut costs as well.
Lidar is a total nonstarter for mass production. You can put it in a 1,000 vehicle Waymo fleet but the economics at mass production scale simply don’t work.
random thoughts if interested:
(if you've not seen the article on Seeking Alpha entitled "Options Trading Drives Tesla's Stock Price", cannot recommend it enough)
this year we've seen 3 discrete massive moves in the stock: 1) late Apr after earnings, 2) week 1 in July, and 3) Aug 6-10 (or thereabouts).
all 3 have the hallmarks of a gamma squeeze. and when you do some back of the envelope math (in a sec), it seems *very* likely gamma squeezes are pushing this thing up.
* current open interest in tesla options is ~ 7-8MM. notionally, thats 700-800MM shs
* while puts and calls would cancel out if the P/C ratio were 1, with Tsla its .6 P/C ( a notable distinction as most stocks its > 1)---which is to say the option market is structurally long calls.
(700M* .4 = 280MM shs notional length via calls in the option market)
* delta adjust the aforementioned 280M by a delta factor (lets be conservative as deferred options have deltas congregating ~ .5), so lets just .4, or 112MM shs delta adjusted length via the option market. ---not a big # relative to the float of 3.5B, but its a damn big # vs daily volume.
* any big buy move in near-to-expiry ATM calls (where gamma is highest) will trigger the gamma squeeze. for it to work, need to see a lot of open interest in the strikes ATM, and ideally not a lot of stock liquidity (ie holiday week).
of course, we dont know what a market maker has on their books, but we do know they sell volatility and delta hedge and given the p/c ratio biased towards calls, they're a structural buyer of tsla if the market is structurally long calls---aggravating every price move higher, but happy to see (and help) it oscillate so they can bank the vol and OTM options expire worthless.
what does the above mean?
1) there's 2 markets for tesla: one for the stock (for which fundamentals SUCK as brad makes clear), and one for the option market, for which the only fundamentals that matter are A) volatility and B) liquidity. (i see nothing short of a complete wipeout in tesla changing this)
2) the 2nd market, the option market, can and does drive tesla's share price at times (and at times like the Q1 earnings squeeze, i'd bet elons family office was behind it). this means there's an ever-present risk of a gamma squeeze for shorts. --makes position sizing critical.
3) volatility cuts both ways. it will go up and down so long as A) fundamentals suck and B) the open interest remains massive with structural bids on the call side to delta hedge when the tail (options market) wags the dog (stock market). ---this is the perfect formula for volatility: Bears (fundys) vs Bulls (net call length with liquidity & volatility to monetize)
knowing this, i'd say be careful around event risk and weeks with high open interest & low aggregate market activity (like a holiday week ala 1st week in july) for subsequent gamma squeezes. last week had just < 0.5MM OI for weekly DTEs (vs 1+MM for first week of july), and it still got squeezed higher on Fri after jackson hole---and i'd note the market makers pinned the close at 220, just as one would expect if they wanted to wipe those long that strike.
I’m here for your “undisciplined” emotional trading. 😁
Brad, I think you made a small mistake on Gary Black’s last point. He wrote “Delaware Supreme court” decision in 2025 and you’re referring to judge McCormick’s decision which will be in 2024, opening then the possibility for Tesla to go to the Delaware Supreme Court.
Otherwise great article, as always, keep them coming.
Lastly a question, when you look at the RSI for your >70% and <30% thresholds, on what time period is that? Are you using the daily ones, 5 minutes or 1h or what? That information is missing.
Thanks in advance!
Hi Andreas, I use the RSI (14) when looking at the chart. Right now, it's at 46.8, so neither here nor there, but for some reason the stock is selling off on smaller than average volumes.
Just curious, what parameters do you use for the RSI indicator? On Yahoo, it ask for "period" (number of days) and "field" (close, high, open, ...), it probably gives slightly different results with different parameters, I would assume....
I use the default 14-day RSI on Bloomberg for my readings. I’m pretty sure that it only uses closing prices, not highs & lows in between.
Oh my god, all of this post. Thanks Brad!