Update on Tesla’s Combination with SolarCity | Hacker News Reader

Update on Tesla’s Combination with SolarCity

tesla.com

100 pointsdwaxe56 comments

If you're interested in money lying on the floor, and believe the SolarCity + Tesla acquisition will go through, you can buy SolarCity shares while they are below the strike price of 22.19 and make instant profit in November.

https://www.bloomberg.com/gadfly/articles/2016-09-16/solarci...

Reading that piece, it's probably more accurate to state:

>believe the SolarCity + Tesla acquisition will go through

and that Tesla stock doesn't instantly take a dive as a result.

Yeah, an arbitrageur would buy SolarCity and short Tesla. So that isn't a risk for them.

Or buy calls on SCTY and puts on TSLA. Much less risk (only the options premiums).

Good luck with that, you'll lose all profits in premium. Check out the Nov 18 SCTY calls, IV over 70 and the premium for the 20 strike is 10% of the current share price. TSLA is not a lot better, IV of 50.

What does your sentence mean? I am not from a finance background - thanks!

It means the cost of buying the options will eliminate the profit. Iv is implied volatility. The higher the IV, the higher the option cost (premium

Don't do this.

You have worse data, less training and slower connections to the exchanges than the competition. You're spitballing in an arena (merger/stat arb) filled with smart people thinking day in and day out about this specific phenomenon.

I used to build market-making algorithms for exchange-listed stock options. Many of our counter-parties were stat arb funds; we'd try to pre-empt their moves. We'd then predict how their likely trades would interact with our merger views as well as our predictions around how other stat arb funds would trade, and trade on those meta predictions.

I'm sure there were turtles another level down trading based on predictions of how our meta models would interact with other market makers' meta models and the stat arb funds themselves.

TL; DR options are complicated, stat arb is complicated, and lots of smart and dedicated people are making it all more complicated every day.

THIS SO MUCH ^

I work for one of said financial firms and you simply can't beat algorithms with directly connected market data feeds to the exchanges unless you also want to pay for them.

Why does exchange speed matter if your internal model shows profit at the current bid/ask prices and volatility? Is it because in the event of a massive change in the underlying you can't exit the positions fast enough to recover some of the premiums?

Because other users with the same or more sophisticated models might have fiber optic direct connections into the exchange, and they will have algorithms which make those decisions before your optical nerves have processed numbers changing.

> Why does exchange speed matter if your internal model shows profit at the current bid/ask prices and volatility

The implication is that every sophisticated investor who focusses on this domain (i.e. merger arbitrage with options) have probably either (a) seen and passed on or (b) already executed on the pricing you're witnessing. You need an extremely high level of confidence in your models to act. Given you are the less-sophisticated agent, the Dunning-Krueger effect merits consideration.

This is not a blanket statement against individual investing. Individual investors have been shown to possess statistical edge, particularly over 20+ trading-day time horizons. But if you're stacking yourself against the experts in a domain marked by legal theory, board-executive politics, other-stakeholder politics, shareholder-board-management politics, et cetera together with thinly-traded non-linear derivatives, you're unlikely to succeed.

Image of a goldfish jumping into a sharktank saying 'much less risk'.

You basically are betting for the same outcome in two different ways, full exposure. I don't see how this is arbitrage.

You're betting on the merger going through, but keep a net-neutral exposure to whether the stock goes up or down.

It's merger arbitrage, the exposure is against the merger going through or not. The market is filtered out. LTCM lost a bundle on it when they were hunting opportunities at the end.

I think that's hedging, not arbitrage.

So if the market hasn't updated the prices to match yet, does that mean most people don't believe it will go through?

There's a price discount associated with the risk that reflects the probability of the merger going through. It doesn't necessarily mean "most". But...why is this on the front page?

Because Elon ?

For the next decade or so, communities like this will be fiercely defensive of anything Musk in involved in; not unlike people who would chant "Don't Be Evil" at you if you tried to point out some trouble with Google on the horizon. Just because people are technically inclined and bright, doesn't mean they're not subject to the same human frailties as anyone else, including the desire for heroes.

Then, when those heroes disappoint... outrage.

Quickest production car currently in production (P100D), a first stage booster that reliably returns to the pad for reuse. Disappointed? Hardly. Even if Musk loses everything, he's done more than most (if not all) people who have that kind of money.

Lets have this conversation in a decade, and if you still feel that way, believe me we'll both be very happy about. The only difference is that I'll be surprised.

Elon, a private individual, has made rockets, something most governments haven't achieved. His rockets fly to space. Then they land standing up. On a barge. In the ocean.

Not sure what it takes to impress you, but when something finally does, be sure to submit it right away.

> Elon, a private individual, has made rockets

A group of engineers under the name of one man made rockets. Musk himself did not do this. If you're going to cheerlead, cheerlead for he people that did the work.

By this logic, Steve Jobs has nothing to do with the iPhone.

You are saying that like I have a problem with that.

"Nothing to do" is probably unfair. "Masterminded" or "Steve Jobs created" is also unfair.

Maybe we could talk in something other than extremes?

You're catching on!

Offering the opinion that there is no value to leadership seems unsupportable.

Maybe but no one says the Pope painted the sistene chapel.

Elon Musk commissioning rockets and cars might have value but that doesn't mean he made them

In interviews, Elon has stated he spends around 80% of his time on engineering. So it is his vision, his money, his company, AND his engineering. There are other makers, too, but he did make them.

I'd be curious what "engineering" he's referring to.

> A group of engineers under the name of one man made rockets. Musk himself did not do this. If you're going to cheerlead, cheerlead for he people that did the work.

A group of engineers under the name of one man made rockets. Each engineer did not do this. If you're going to cheerlead, cheerlead the person that brought the engineers together.

Why is that team member any more important than any other team member?

It's not. But it's no less important that the team itself, which isn't very useful without direction.

Private company, but yes. This is the most interesting achievement in rocketry in the past several decades. Drop the cost of launching to less than 90% of what it has been? Please.

I own shares of Tesla Motors, and I'm perfectly fine with it all going to zero, as long as Musk and Company make as much headway as possible towards electric mobility and shifting us to renewables.

I will never be disappointed by Musk because he's authentic. I'm sorry you can't appreciate the fortitude required to push as hard as he (and his entire team) has.

I'm just less of a cheerleader, and more someone who likes to study patterns in history.

Oh, I can understand that perspective. I do expect that the company will have fewer ardent cheerleaders in 10 years.

However, they may also have fewer ardent critics and more moderately happy customers. That seems to be a common pattern with companies like this. :)

At 33, you have over 200k in stocks for a single company from working in IT. Can you elaborate? Are you all in on Tesla?

Prudent financial decisions. Not all-in on Tesla.

>I'm perfectly fine with it all going to zero, as long as Musk and Company make as much headway as possible towards electric mobility and shifting us to renewables.

You know you can root for Tesla without risking your financial future, right?

Do you support the auto majors who are also doing much of the same work, but less so in the public eye?

Not OP, but personally, I don't support them as much. Musk / Tesla created the demand for these vehicles. They have been technically achievable for a long time, but market forces were very against them. Why do R&D for a new type of engine when the one you already have is good enough and people buy them?

Why do R&D for a new type of engine when the one you already have is good enough and people buy them?

Because the emissions limits start forcing you to sell them if you hope to sell a single truck or SUV?

http://www.ucsusa.org/clean-vehicles/california-and-western-...

When was that enacted? It's quite easy to run into 'technical limitations' or otherwise find ways to put pressure back on the law that effectively invalidate it. Or even cheat. Unless there are already existing cars that work that way.

>Musk / Tesla created the demand for these vehicles.

I guess that depends on where you decide to "start". I'd argue that Ford created the everyday demand for these vehicles, and Tesla built off of that.

>Why do R&D for a new type of engine when the one you already have is good enough and people buy them?

Is that really how you think the majors work? That they aren't innovating?

Sure, they are restricted in some fashion because they have an obligation to shareholders to produce value. But these people aren't stupid. They also don't care whehter they are selling you an ICE or an EV, as long as they are selling you.

I think they need pressure to innovate beyond the standard incremental innovations. Tesla played a strong part in providing that pressure for electric vehicles.

Since everything that he said was past tense, I'm not sure what would change?

The same people who criticize 2016 Google will give 2006 Google a lot of credit. I don't see how Tesla would be any different.

>Quickest production car currently in production (P100D), a first stage booster that reliably returns to the pad for reuse.

This is an announcement that there's an upcoming shareholder vote...

I don't think there's necessarily any "human failing" involved here. At one point, Google was doing things that were inspiring and significantly changed how people use computers. Now, they're a lot more active in collecting personal data and I can't name one product they've released in the last five years that I'm excited about. My opinion of Google has changed to reflect the current situation.

A similar thing happened with Microsoft. In the 90's, they basically paved the way for commodity hardware. I could buy an OS from them and run it on any hardware I liked. That was a big deal. Unfortunately, the software ecosystem stagnated because it was dominated by one company for so long. (I switched to Linux at the time and have been using it ever since, but Linux was successful in part because hardware was commodized.)

Tesla and Musk's other projects might follow a similar trajectory of doing amazing stuff for five or ten years and then coasting on their established reputation from then on. However, that's no reason not to be excited about the stuff they're doing now.

Tesla is a really interesting company for people here, so its every move tends to get posted. Usually that's reasonable, since they tend to do interesting stuff. The SCTY merger is interesting since it's a big deal and will have a big impact on the company, but this particular link doesn't seem to have all that much to add.

Why wouldn't it be on the front-page? Seems there is some newsworthy info here as well as a clear call to action.

They announced the shareholder vote date, had a schedule for upcoming combined product announcements over the next ~3 weeks, and asked their shareholders to vote on the deal. All newsworthy, it seems.

SolarCity is not the solution. I contacted them about getting a large array installed, and the actual arrangement is much different than what is conveyed via marketing materials and during the sales process. Many, many customers end up paying substantially more for electricity.

I'd love to hear the details. Even when it's simply a discounted rate for installing the panels?

All I ask from this is a new SolarCity commercial involving Ra driving a Tesla.

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