As we expected, Covid has become a huge issue in China but they stopped reporting numbers and rumors are anywhere from 50M to 350M people have been infected in the past month. At the moment, US numbers are holding steady at 66,000 infections per day (24M/year) and “only” 426 deaths per day (155,490/year), which is only as many Americans as died during the entire Vietnam war every 6 months – so why worry about that?
One effect we are seeing here is Tesla’s (TSLA) stock is dropping today because their Shanghai plant is extending production cuts into next year due to the Covid emergency. At the moment, the plant is completely shut down. Shanghai makes about 1/3 of all Teslas (3s and Ys) in the World.
$117 pre-market is down to $368Bn from $1,300,000,000,000 last Christmas – so it’s been a bad year for Elon and company. The real problem is they never should have been at $1.3Tn and, even at $368Bn, the company “only” made $13Bn in 2022 so it’s STILL trading at 28x earnings but they projected $19Bn for next year, which would be a forgivable 19 times earnings but producing ZERO cars in Shanghai for a month will cost them $1Bn.
On the other hand, TSLA has $17.5Bn net of debt in the bank – that’s a huge plus, so they are getting into the zone where they may be playable. This morning you should be able to sell the 2025 $50 puts for $10 and that would net you into the stock for net $40 and even Elon Musk shouldn’t be able to screw things up that badly – right?
Let’s say we sold 10 short TSLA 2025 $50 puts (obligating us to own 1,000 shares at $50) for $10,000 and bought 20 of the 2025 $50 ($80)/80 ($63) bull call spreads for net $17 ($34,000).
