UPDATE: How you can make money on Tesla whether the company fails or succeeds
By Brett Arends, MarketWatch
A clever trade is buying bonds and 'put' options
It looks like the last people to cut Elon Musk a check are probably already ruing the day.
It's been just a few weeks since investors lent
The stock and convertible bonds have slumped in the latest panic. The "conversion" feature on the bonds, which is supposed to give them extra value if
Read: Is it time to revive the rumors that Apple will buy
In the months ahead, these sorts of losses could start looking like peanuts. It seems like the long-awaited showdown between Musk and Wall Street has finally arrived.
This could be Mardi Gras for traders. There is a lot of money to be won -- and lost.
Few companies have so many fans as
With tens of billions of dollars at stake, and Musk in the spotlight, expect plenty of fireworks.
Even at the latest stock price,
For a company supposedly at risk of implosion, that's a lot of equity value. (Needed footnote: If
Meanwhile, the bond market is now putting about a 30% probability on
Creditors are now demanding an astonishing 9% a year interest to compensate for the risks of lending to the company till 2025. That's nearly four times the so-called "risk-free" interest rate on equivalent Treasury bonds.
It's about as bad as it sounds.
The real action is going to be in the options market, as usual. This is where anyone, even a retail investor, can make big money on fast moves. If you think
And it sets up intriguing two-way wagers.
The bonds, for example, offer a 50% return if the company avoids default.
But some of the equity options offer huge payouts if it doesn't.
"Put" options, or "down" bets, on the stock can pay out seven to one or more if the company defaults and the stock goes to zero. For instance, the $50 puts, good till January 2021, cost $6 a share and will net you a $44 profit if
Bottom line: Buy the bonds, buy the puts, and there's a very good chance you'll make money either way.
Of course, if you want to be the real "smart money," you can't just make the trade.
You have to make it with other people's money. Leveraged 10 to one.
Oh, and throw in a sweetheart profit-sharing contract, and a giant, egregious tax loophole, as well.
Brett Arends is a MarketWatch columnist.
-Brett Arends; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 23, 2019 17:19 ET (21:19 GMT)
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