resurrected an old tweet to share some thoughts on hedging strategies ...Elon has hands full and is in it or the long haul with regard to #TSLA, but in taking down #TWTR, even someone of his wealth can benefit from "locking in" value of shares.
https://twitter.com/Alpha_Ex_LLC/status/1346557127490478088?s=20&t=MqPEnE9R9fsnt0h5mu2GCQ
the "zero cost collar" does this...at start of Jan'21, with TSLA at 735 per share, Elon could have bought the Jan'23 expiry 530 put and fully funded the protection by selling the Jan'23 1425 call! The put protects shares 28% below 735 price then.
the call is struck so high that he'd get to realize gains in the stock 94% above that 735 level! pretty attractive! makes the big quarterly SPX collar look bad by comparison, but why? the tweet back then was based on the incredible bid to long-dated vol in TSLA.
at that time, 2 yr implied vol was >70...not at all the norm for a company with such a high market cap. this is critical for the favorable pricing dynamics in the 530/1425 collar. in this trade, Elon sells (and the dealer buys) "vega"...
this greek (not actually a greek letter but...), maps change in option price for a 1% move in implied volatility. Vega did in LTCM as they were short by some estimates 80mln USD per vol point. when 5 yr SPX implied vol ramped by 10+ points lsummer '98, LTCM was out 500mln-1bln.
in implementing a collar, Elon would have been reducing his delta risk by buying put, selling call, but also shorting TSLA vol at a very high level. it's unclear at all given his size how much of this the street could have/would have taken down.
but here are some charts to consider...first, TSLA stock versus stock +collar. second 2m realized vol with and without the collar. a good hedge reduces variability...that was accomplished here...much less vol with the collar. 
next, let's look a bit more closely at option "vega". the top panel is the individual vega of each option starting on 1/5/21. the scales on the left and right side are diff. the call vega is higher than put vega on trade date.
these vegas come down as time passes and we get closer to the Jan'23 expiry. as of now, the put vega exceeds the call vega. let's also look at the evolution of the implied vol on the Jan'23 1425 call strike...that's here. it's come down a lot over time.
Elon doesn't seem like the kind of guy to hedge...but this trade would have been a pretty good risk reducer at favorable levels of implied volatility.
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