To quote John Maynard Keynes, “The market can stay irrational longer than you can stay solvent"
An option's value is its intrinsic value, plus its time value. The time value of an option is mostly sigma, yes.
Can we stop pretending that any part of the market behaves rationnally?
Investors buy a stock because they think there will be someone else to buy it from them at a higher price later, that's it, they don't look further.
Everyone was already complaining about this when $TSLA was at 50$ a share...
Every time this discussion happens, people trot out the quote about markets staying irrational longer than you staying solvent. This quote is only ever relevant if you're leveraged, or if you're at risk of someone else forcing you to exit your short position. If you're an individual investor with a 20 year time horizon, shorting a stock with less than 5% of your portfolio, you don't have to worry about either. You absolutely can stay solvent longer than the market can stay irrational.
The real reason people don't go shorting TSLA nearly as much as you would think, is because Tesla's future isn't nearly close to a foregone conclusion. It's a lot more fun to make bold predictions with absolute confidence when you don't have anything to lose.
Do you understand how shorting works? If you had shorted $10k of TSLA stock in May you would have lost $23k by now (it's not just a paper loss, you have to post collateral to avoid liquidation). And you also have to pay to borrow the stock you're shorting, so even if you don't face a margin call time goes against you.
Edit: By the way, if you had opened in May a short position in TSLA that represented 5% of your portfolio it would be 15% of your portfolio now. That's another problem of shorts: as they move against you they get bigger and at some point you may want to worry.
If being 15% short is a not-so-good idea, that’s the situation now for people who entered a 5% nothing-to-worry-about short a few months ago.
Should it triple again in the near future, the short would be 45% of the long position (and they would be sitting on a huge unrealized loss).
Being right in the long term is not necessarily enough for a short to be a good investment.
If you short a company valued at $50B, with 5% of your portfolio, it would have to become a trillion dollar company before you go insolvent.
If that's still too scary for you, you can short it with 1% of your portfolio. Now the company needs to become a $5T company, before you go insolvent.
If you honestly think that Tesla will surge into a $5T company, before crashing back down to <<$50B, then you're the one living in a reality distortion field.
If you claim to be extremely confident about Tesla's stock crashing, but aren't willing to take even a 1% short position, then your actions don't match up to your words.
Did you short Monsanto in 2015 because you expected Roundup lawsuits to hit the stock? Well, you were kind of right but that's Bayer's problem now. Monsanto (the stock MON) is no more and you position was closed at a loss.
I'm not sure how you got your conclusion out of what I said.
The issue with that is that GP is arguing that this stock's investors continue to behave irrationally. There is no reason to believe they are going to suddenly behave rationally. Thus, a short position is inadvisable. If you are a value investor, the right thing to do is to just not invest in it.