JAKE MERL: Welcome to Trade Ideas. I'm Jake Merl, sitting down with Jerremy Newsome of Real Life Trading. Jeremy, great to have you on the show for your very first Real Vision interview.
JERREMY NEWSOME: Yes, man, thank you so much for having me. I appreciate it.
JAKE MERL: So, before we get into your trade idea for today, can you please briefly review your background, who you are and what you do at Real Life Trading?
JERREMY NEWSOME: I went to school for a finance degree and I was learning in college, I want to learn how the stock market works. And as you know, in college, they teach you all about the stock market and how to enter and how to exit and how to hold. And since, purely sarcastic, I didn't learn anything in college and you start hitting the books, man, going to YouTube and just learning how to trade and what I do now is I teach people how to profitably and safely trade the stock market in all avenues- day trading, options, long term investing, swing trading, credit spreads, the whole gambit, futures, cryptocurrencies, forex, all that.
JAKE MERL: And so, with that in mind, what are you looking at right now?
JERREMY NEWSOME: So, specifically, right now, Tesla, I'm a Tesla bull. And I know some people who're watching this are going to be a little shocked by that. Particularly, the plan that I'm looking at, the strategy is actually selling volatility. Right now, Tesla has a lot of volatility, a lot of people are expecting it to crumble, they're more or less expected to go to zero. Balance sheets are terrible. Elon Musk, in an email, said they don't have enough cash for a few months of operations. So, my plan is to sell some premium on the downside, which means selling puts. So, I'm literally planning on selling insurance to someone on Tesla, that's a put sale is that particular strategy.
And I'm looking at the $100 strike price for January of 2020. So, we're talking about seven months away, my number one plan is that Tesla will not crash down to 100. So, when you're selling an option, it is a very bullish position. So, my plan, when you sell put options, your plan normally is to be totally fine actually owning the shares of Tesla. So, my plan, my thought process is how many shares would I like to buy at 100? And the answer is two. Two contracts which is 200 shares, which would be a $20,000 investment. So, owning Tesla at $100 a share, two contracts, 200 shares $20,000 investment, I will get paid to do this particular trade.
So, when I sell the option, you actually go into your account, click sell to open, and it's a trade that requires margin or a lot of cash, $20,000 in cash and you'll actually get paid to do that trade. So, upon submitting it, you're going to receive right now approximately $400 per contract. So, in the trade, you'd actually get paid $800 to just sit back and do nothing.
JAKE MERL: And that's over the course of next seven months?
JERREMY NEWSOME: It's all the course of next seven months, right. And so, the overall perspective is if Tesla does go down all the way to 100, my worst case scenario on this particular stock trade, this option setup is that Tesla goes to zero. That's my worst case scenario. But that's the exact same worst case scenario is if you own shares, the stock goes to zero. So, realistically, I'm personally only going to protect my downside by going long puts if it breaks 150.
JAKE MERL: Gotcha. And so, that would limit your risk you're saying?
JERREMY NEWSOME: Yup, exactly. So, and the cool part is insurance companies do this all the time. It's actually called reinsurance. So, an insurance company like Nationwide, that's a company that used to work at when I was younger, they would ensure their positions, they have all this insurance and they'd actually buy insurance on that just in case a claim actually happens. So, it's great. So, in this particular scenario, I'll be selling a longer term option. And then if Tesla starts breaking these primary levels, about 150 and 140, I could then buy an insurance contract protecting the downside as Tesla continues to go lower, if that happened, which I do not expect it to.
JAKE MERL: And why don't you expect it to?
JERREMY NEWSOME: I think the worst is here. The presentation that Elon Musk just gave at the shareholders' meeting was outstanding. I realized that this will be a controversial interview. That's to be expected. The market is very volatile with Tesla, a lot of people expect it to go to zero, but Elon Musk is a visionary. In my opinion, he's probably one of the smartest if not the smartest person on Wall Street today. And his vision is so compelling and incredible. The shareholders who were in that meeting were like, I love this guy. Love the company and love the team. Love the product, love the vision.
JAKE MERL: So, what would you say is the biggest risk to your thesis?
JERREMY NEWSOME: The biggest risk to my thesis is, realistically, Elon Musk either getting sick, getting fired as CEO, quitting as CEO or something unfortunately happening to him, a loss of life. That's realistically. If Elon Musk is the CEO of Tesla, this trade works.
JAKE MERL: Well, Jerremy, we'll see how it plays out. Thanks so much for joining us.
JERREMY NEWSOME: My pleasure.
JAKE MERL: So, Jerremy is bullish on Tesla. Specifically, he likes selling the January 2020 100 trek put option on Tesla. That was Jerremy Newsome of Real Life Trading and for Real Vision, I'm Jake Merl.