Today Tesla (TSLA) shares jumped more than five percent today and our standing limit order at $625 triggered our sale of two shares. In late August I had established a limit order to sell five shares at $625, but last week, as TSLA threatened that level three weeks prior to its inclusion into the S&P 500 index, I split that limit order to sell two shares at $625 and created a new order to sell three shares at $675. The difference in this order modification is $150 (if both orders are executed) but, as we still have two weeks prior to TSLA’s index inclusion, I can split the standing order again to sell at a higher price. As we stand, our $675 order is six percent above the market price, and our stake in the electricity innovator at 1.97% of our portfolio.
TSLA shares seem remarkably overpriced but there are significant market opportunities for TSLA products and innovation is TSLA’s identity. I like exposure to TSLA but, as share prices seem priced more and more speculatively, two percent of our portfolio a comfortable allocation. When I last trimmed the TSLA position (August 17th, 2020), TSLA was also around two percent of our portfolio but our portfolio has grown 13% (nearly $100,000) in the past four months. I had planned to restrain our exposure to $10,000 but perhaps a percentage-based approach is more suitable.
This post has required much more time than I had intended because I do not want to stray from my original plan because as the prevailing risk-free rate of interest is held at remarkably low – likely less than the rate of inflation – the market will thrust asset prices higher. In fact I have just cooked refried beans and listened to a podcast about Abraham Lincoln between sentences – in addition to constructing a schedule to analyze TSLA’s weight in our portfolio as prices rise – in the effort to further consider how to handle allocation.
Shares of TSLA are now trading around $645 and I have increased my sell limit order to three shares at $690. If prices continue to accelerate as TSLA shares are added to funds that are required to hold constituent firms of the S&P500, I plan to sell two shares when share prices increase by $70. This strategy is designed for the short-term. TSLA shares may eventually grow into their current valuation but I do not plan to follow this plan to sell beyond the first quarter of 2021.
We also repurchased our short position in a Pinterest (PINS) put option contract today. We only initiated the position in this contract (strike: $56.5; expiration: 31DEC2020) on Friday but we’ve already earned more than 41% of the premium so I am not disappointed to find this PINS position closed by my initial standing limit order. Though we only netted $28.61, we only had $5,650 exposed to PINS. Over three days we earned 0.5% or 61.6% annualized on the trade.