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David Pinsen
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I founded Launching Innovation, LLC, to bring together developers, designers, and academic finance experts to create easy-to-use tools to solve complex problems for investors.
My company:
Portfolio Armor
My blog:
Steam Catapult
  • Five-Star Safety For Tesla Shareholders 0 comments
    Oct 2, 2013 4:53 PM | about stocks: TSLA

    Shares of Tesla Moters Inc (NASDAQ:TSLA) took a hit Wednesday after a video surfaced of Tesla Model S engulfed in flames after a collision. The revelation of this video came on the heels of Tesla's downgrade by Robert W. Baird. For Tesla shareholders looking to add some downside protection in light of these events, below is a way to do so.

    This was the optimal collar, as of this Wednesday's close, to hedge 200 shares of TSLA against a greater-than-20% drop over the next several months, for an investor willing to cap his potential upside at 20% over the same time frame:

    As you can see at the bottom of the screen capture below, the net cost of this optimal collar was negative, meaning you would have gotten paid to hedge in this case.

    Note that, to be conservative, Portfolio Armor calculated the cost of this hedge by using the bid price of the call leg and the ask price of the put leg. In practice, you can often sell calls for more (at some price between the bid and ask) and buy puts for less (again, at some price between the bid and ask), so, in actuality, an investor opening the optimal collar above would likely have netted more than $50 to do so.

    *Optimal collars are the ones that will give you the level of protection you want at the lowest net cost, while not limiting your potential upside by more than you specify. Portfolio Armor's algorithm to scan for optimal collars was developed in conjunction with a post-doctoral fellow in the financial engineering department at Princeton University. The screen captures above come from the Portfolio Armor iOS app.

    Stocks: TSLA
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