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It maximizes his chance of survival either way. The probability that Elon is margin called by year end is roughly 40% according to option prices. - 60% chance

by fny 4y ago

It maximizes his chance of survival either way. The probability that Elon is margin called by year end is roughly 40% according to option prices. - 60% chance you get fired either by Musk or investors if you don't turn the ship. - 40% chance you Musk is margin called and doesn't take over, but still might be fired by investors or acquired by someone else who may in turn can him.

SemanticStrengh 4y ago
The crypto crisis should significantly diminish musk wealth no?
- heartbreak 4y ago
  You’re getting downvoted for no apparent reason, but there’s an argument to be made here that crypto crashing would cause retail investors to pull out of investments altogether, and meme stocks like Tesla would take a hit. Bloomberg, WSJ, etc. are all writing about this potential contagion effect today.
- ben_w 4y ago
  No, why would you think that? His wealth is mostly owning 20% of Tesla, plus some extra few billions from owning significant fractions of SpaceX, The Boring Company, and Neuralink. Presumably there’s some cash in there as well, but on his scale a hundred million is a rounding error.
  - SamBam 4y ago
    It still confuses me that being part-owner of an old dot-com payment company, part-owner of a mid-sized car company (by number of cars sold), and part-owner of a (very good) rocket company make a person richer than anyone has ever been in the history of the planet, but that's probably because I just haven't looked into it enough.
    - disgruntledphd2 4y ago
      I think Mr Musk will no longer be the world's richest man by end of 2023.
    - paganel 4y ago
      That "mid-sized car company" has revolutionised an ~120-year industry while still managing to remain at the forefront, that's why its valuation is so high (even though I also do believe it's over-valued). I'm not saying this as a Tesla-lover nor as a fan of Musk, in fact, as a lover of gasoline engines and of cars in general I see this as a tragedy (I regard EVs as refrigerators with some wheels attached), but it is what it is.
      - SemanticStrengh 4y ago
        Where is the revolution? There are competitive cars vs tesla for electric. Even if tesla have an edge, it's evolutionary, not at all revolutionary.
        dotnet00 4y ago
        I assume revolutionary in that other companies have only really started taking EVs seriously due to the success of Tesla.
        adventured 4y ago
        People constantly attempt to pretend Tesla didn't spark the EV revolution, because they can't stand to give Musk and or a US company credit. It's the same reason they aggressively pretend Apple didn't spark the smartphone revolution (when it all very obviously derived from the iPhone and its dramatic impact, right down to the design of the phone and interface being copied by everyone else). It's the same reason if you say the US invented the Internet here on HN, you'll get confused replies by people from outside of the US that are entirely ignorant of that fact, because of foreign revisionist history and the desperate desire to deny the US credit for its vast accomplishments (the America bad brigade). The same goes for eg the transistor, microprocessor and countless other prominent technologies that revolutionized the world.
  - adventured 4y ago
    Bloomberg pegs him as having $9b in cash, $3b Twitter, $40b SpaceX, $3b Boring Company (silly valuation), $5b in misc liabilities, and the rest Tesla.
  - Denvercoder9 4y ago
    Musk's share of SpaceX is worth more than an "extra few billions". SpaceX is valued at around $100B, and Elon Musk owns about 47% of it.
  - iudqnolq 4y ago
    One theory goes that the same people are invested in Tesla and Crypto. If their crypto holdings are wiped out they might have to sell their stock holdings to keep their roofs over their heads. Even if it's not that bad they might become more risk-adverse now one of their big bets has failed. Not endorsing that, not an expert. Just think it's not as absurd as you suggest.
gitfan86 4y ago
The more likely scenario is that some of the financial backers like Larry Ellison will ask Elon to renegotiate the buyout price due to current market conditions and the deal will fall through.
- adventured 4y ago
  Twitter is worth a lot less than what it's trading for. Musk's bid is rather idiotically high. Twitter's shareholders will be desperate if they start to see the full mauling that other prominent, hyper overvalued tech stocks have enjoyed lately. They will take a lower offer accordingly, whether that's from Musk or other. The stock is going into the $20s if they don't take an acquisition offer from someone.
  - swalsh 4y ago
    Twitters P/E ratio is 186.12!
    - nullc 4y ago
      The incoming cashflow is substantial and if they simply cut off the R&D it would be a very profitable company.
      - amusedcyclist 4y ago
        Generally most of software development (including what you would think of as maintenance) is counted as R&D for tax purposes
  - zimpenfish 4y ago
    > Musk's bid is rather idiotically high Well, it was either $54.20 or $69.00 (I suppose he could have gone for $44.20 but would that have tempted anyone?)
    - djbusby 4y ago
      A real meme-lord would bid $42.069
JumpCrisscross 4y ago
> Elon is margin called by year end is roughly 40% according to option prices The margin loans will almost certainly be replaced with outside equity prior to closing.
- shapefrog 4y ago
  I am wondering what is in it for those people lining up - they are paying 20% over the market value to be locked in with musk.
  - trothamel 4y ago
    Tesla is up 995% over the past 5 years.
    - adventured 4y ago
      - fny 4y ago
        The question is not whether he's been successful. He has been, the question is whether this is the peak valuation akin to Cisco during dotcom and whether he is over leveraged at this point.
        adventured 4y ago
        Some of that depends on whether Twitter can partially self-fund the acquisition itself over time. Most likely it can, that much more so if Musk negotiates a lower price. Debt is very inexpensive right now, especially for large corporations with a strong balance sheet. If Musk owns all of Twitter, he gets their $6 billion in cash and their balance sheet has no consequential debt issues. Twitter is operationally profitable, despite being very poorly run in terms of cost structure. Their margins on sales should be far greater than at present; they have a bloated employee count and have for a very long time. There's no reason Twitter can't spit off $1b in operating income on $5b in sales. Further, Musk has ~$9b in cash (per Bloomberg), lots of very rich friends (eg Ellison, Google founders, VC billionaires, etc etc) that believe in him, and lots of assets in Tesla and SpaceX he can borrow $10b-$20b against if needed. That said - I don't think levering himself to the moon is wise and I don't think paying $40b+ for Twitter is smart. Particularly at this point in time (with the global economy shaky, the US economy contracting in real terms, China's economy shaky, and financial markets sinking).
Py-o7 4y ago
> The probability that Elon is margin called by year end is roughly 40% according to option prices. The way tycoons frequently do this involves putting collars around a significant portion of the margined stock (and for a sizable position like this, the trade would flow through to option prices on tesla and the stock itself via delta hedging or whatever the trade desks are doing as part of the trade)
- splistud 4y ago
TechBro8615 4y ago
> The probability that Elon is margin called by year end is roughly 40% according to option prices. This sounds like “two more weeks, MOASS, trust me bro” level of analysis. How can you possibly have enough insight into Musk’s financial holdings to make such an assertion? Nevermind the structure of the Twitter deal itself, which doesn’t exactly require him to fork over $40 billion in cash.
- rocqua 4y ago
  Musk has published his margin loans backed by tesla stock. Those come with a clear margin requirement iirc. It is then easy to calculate 'at this price, the loan will face a margin call'. Options pricing implies a probability of a certain price being hit by a certain time. So they imply a probability of the margin loans Musk has getting a margin call. Ofcourse, getting a margin call wouldn't mean the loan falls through. Guessing that would require deep insight into Musks personal financials.
elevenoh 4y ago
>The probability that Elon is margin called by year end is roughly 40% according to option prices. How did you deduce this from options prices? IV?

by fny 4y ago

SemanticStrengh 4y ago

The crypto crisis should significantly diminish musk wealth no?

heartbreak 4y ago
You’re getting downvoted for no apparent reason, but there’s an argument to be made here that crypto crashing would cause retail investors to pull out of investments altogether, and meme stocks like Tesla would take a hit. Bloomberg, WSJ, etc. are all writing about this potential contagion effect today.
ben_w 4y ago
No, why would you think that? His wealth is mostly owning 20% of Tesla, plus some extra few billions from owning significant fractions of SpaceX, The Boring Company, and Neuralink. Presumably there’s some cash in there as well, but on his scale a hundred million is a rounding error.
- SamBam 4y ago
  It still confuses me that being part-owner of an old dot-com payment company, part-owner of a mid-sized car company (by number of cars sold), and part-owner of a (very good) rocket company make a person richer than anyone has ever been in the history of the planet, but that's probably because I just haven't looked into it enough.
  - disgruntledphd2 4y ago
    I think Mr Musk will no longer be the world's richest man by end of 2023.
  - paganel 4y ago
    That "mid-sized car company" has revolutionised an ~120-year industry while still managing to remain at the forefront, that's why its valuation is so high (even though I also do believe it's over-valued). I'm not saying this as a Tesla-lover nor as a fan of Musk, in fact, as a lover of gasoline engines and of cars in general I see this as a tragedy (I regard EVs as refrigerators with some wheels attached), but it is what it is.
    - SemanticStrengh 4y ago
      Where is the revolution? There are competitive cars vs tesla for electric. Even if tesla have an edge, it's evolutionary, not at all revolutionary.
      - dotnet00 4y ago
        I assume revolutionary in that other companies have only really started taking EVs seriously due to the success of Tesla.
        adventured 4y ago
        People constantly attempt to pretend Tesla didn't spark the EV revolution, because they can't stand to give Musk and or a US company credit. It's the same reason they aggressively pretend Apple didn't spark the smartphone revolution (when it all very obviously derived from the iPhone and its dramatic impact, right down to the design of the phone and interface being copied by everyone else). It's the same reason if you say the US invented the Internet here on HN, you'll get confused replies by people from outside of the US that are entirely ignorant of that fact, because of foreign revisionist history and the desperate desire to deny the US credit for its vast accomplishments (the America bad brigade). The same goes for eg the transistor, microprocessor and countless other prominent technologies that revolutionized the world.
- adventured 4y ago
  Bloomberg pegs him as having $9b in cash, $3b Twitter, $40b SpaceX, $3b Boring Company (silly valuation), $5b in misc liabilities, and the rest Tesla.
- Denvercoder9 4y ago
  Musk's share of SpaceX is worth more than an "extra few billions". SpaceX is valued at around $100B, and Elon Musk owns about 47% of it.
- iudqnolq 4y ago
  One theory goes that the same people are invested in Tesla and Crypto. If their crypto holdings are wiped out they might have to sell their stock holdings to keep their roofs over their heads. Even if it's not that bad they might become more risk-adverse now one of their big bets has failed. Not endorsing that, not an expert. Just think it's not as absurd as you suggest.

gitfan86 4y ago

The more likely scenario is that some of the financial backers like Larry Ellison will ask Elon to renegotiate the buyout price due to current market conditions and the deal will fall through.

adventured 4y ago
Twitter is worth a lot less than what it's trading for. Musk's bid is rather idiotically high. Twitter's shareholders will be desperate if they start to see the full mauling that other prominent, hyper overvalued tech stocks have enjoyed lately. They will take a lower offer accordingly, whether that's from Musk or other. The stock is going into the $20s if they don't take an acquisition offer from someone.
- swalsh 4y ago
  Twitters P/E ratio is 186.12!
  - nullc 4y ago
    The incoming cashflow is substantial and if they simply cut off the R&D it would be a very profitable company.
    - amusedcyclist 4y ago
      Generally most of software development (including what you would think of as maintenance) is counted as R&D for tax purposes
- zimpenfish 4y ago
  > Musk's bid is rather idiotically high Well, it was either $54.20 or $69.00 (I suppose he could have gone for $44.20 but would that have tempted anyone?)
  - djbusby 4y ago
    A real meme-lord would bid $42.069

JumpCrisscross 4y ago

> Elon is margin called by year end is roughly 40% according to option prices The margin loans will almost certainly be replaced with outside equity prior to closing.

shapefrog 4y ago
I am wondering what is in it for those people lining up - they are paying 20% over the market value to be locked in with musk.
- trothamel 4y ago
  Tesla is up 995% over the past 5 years.
  - adventured 4y ago
    - fny 4y ago
      The question is not whether he's been successful. He has been, the question is whether this is the peak valuation akin to Cisco during dotcom and whether he is over leveraged at this point.
      - adventured 4y ago
        Some of that depends on whether Twitter can partially self-fund the acquisition itself over time. Most likely it can, that much more so if Musk negotiates a lower price. Debt is very inexpensive right now, especially for large corporations with a strong balance sheet. If Musk owns all of Twitter, he gets their $6 billion in cash and their balance sheet has no consequential debt issues. Twitter is operationally profitable, despite being very poorly run in terms of cost structure. Their margins on sales should be far greater than at present; they have a bloated employee count and have for a very long time. There's no reason Twitter can't spit off $1b in operating income on $5b in sales. Further, Musk has ~$9b in cash (per Bloomberg), lots of very rich friends (eg Ellison, Google founders, VC billionaires, etc etc) that believe in him, and lots of assets in Tesla and SpaceX he can borrow $10b-$20b against if needed. That said - I don't think levering himself to the moon is wise and I don't think paying $40b+ for Twitter is smart. Particularly at this point in time (with the global economy shaky, the US economy contracting in real terms, China's economy shaky, and financial markets sinking).

Py-o7 4y ago

> The probability that Elon is margin called by year end is roughly 40% according to option prices. The way tycoons frequently do this involves putting collars around a significant portion of the margined stock (and for a sizable position like this, the trade would flow through to option prices on tesla and the stock itself via delta hedging or whatever the trade desks are doing as part of the trade)

splistud 4y ago

TechBro8615 4y ago

> The probability that Elon is margin called by year end is roughly 40% according to option prices. This sounds like “two more weeks, MOASS, trust me bro” level of analysis. How can you possibly have enough insight into Musk’s financial holdings to make such an assertion? Nevermind the structure of the Twitter deal itself, which doesn’t exactly require him to fork over $40 billion in cash.

rocqua 4y ago
Musk has published his margin loans backed by tesla stock. Those come with a clear margin requirement iirc. It is then easy to calculate 'at this price, the loan will face a margin call'. Options pricing implies a probability of a certain price being hit by a certain time. So they imply a probability of the margin loans Musk has getting a margin call. Ofcourse, getting a margin call wouldn't mean the loan falls through. Guessing that would require deep insight into Musks personal financials.

elevenoh 4y ago

>The probability that Elon is margin called by year end is roughly 40% according to option prices. How did you deduce this from options prices? IV?