TSLA Market Action: 2018 Investor Roundtable

[Johann Koeber]

If Tesla goes private, are shareholders essentially guaranteed $420/share? So buying now around $380 will guarantee a ~10% gain in the short term?

Yes.

Glad you started your sentence with 'If'.

Similar situation with Solarcity at the time. Many of us here profited nicely.

 

[Bobbyducati]

crazy how its just bumping around at 378. im prob not sleeping tonight.

 

[Johan]

The offer they would take is to exchange public shares for private shares. Think of it this way.

Under this private offer, a public share becomes a call option on a private share with strike $420 plus $420 cash.

What is the value a private share? It is the value of public share minus the liquidity of the public share PLUS the dilution of the public share caused by shorting.

So mostly we are getting rid of the dilution effect of shorting. That is what makes the private share worth about 20% more than the public share. Through going private, shorts will be forced to close out their position, buying some 34M shares on the open market.

So remember what the shorts will be forced to buy: an option on a private share that they can no longer shorts to dilute its value. They will be forces to buy back the value they have taken from longs through dilution.

This exactly. Provided the deals goes through as planned we're also going to get to see how much naked short selling there is. This deal is like calling someone's hand in poker; you have to show your cards in the end.

 

[Unpilot]

Bought some more at 378 ...can't pass up free money.

 

[Vitold]

I wonder if there was a way to setup new private Tesla so federal EV rebate 200k limit would reset?

 

[neroden]

So if a particular stock gaps up significantly in price, what is the incentive for the borrower not defaulting on their loan and thus losing the collateral but not having to pay the much higher gap-up price?

I.e., hypothetically, if TSLA price spikes up to $1,000+, we are talking about 40+ billion dollars of short losses here. Can the borrowers (shorts and their brokers) simply 'default' on the last collateral they posted and thus reduce their losses to the current approximately ~4 billion? That's a 36 billion dollars question, so I'm wondering what the small print is there.

The shorts can't default; it's a recourse loan.

The broker isn't supposed to voluntarily default either -- and probably won't, given that it would (a) give them a bad reputation, and (b) they can get the money back from the short-sellers, except to the extent that the short-sellers declare bankruptcy. The amount to which the broker is exposed is low, given that their exposure is really only the difference between the *total assets* of the short-sellers (including house, car, etc.) and the amount the short-seller has to post.

It will be interesting. The brokers will probably close the short positions against the will of the short-sellers (they have the absolute right to do this), sell the other stocks in the short-sellers' accounts, and then phone up any short-sellers who still have a deficit to ask how they plan to pay their debt off.

 

[mrwuffles]

crazy how its just bumping around at 378. im prob not sleeping tonight.

Imagine the shorts are taking a wait-and-see approach. Any who are short via puts can't participate anyway. Many probably don't know the news yet and won't know until their favorite trolls post on SA or Breitbart.

 

[tti_7]

Something just clicked in my head. Dave Morton (accounting guy) from Seagate just joined Tesla last week (a Seagate guy since 1995). Didn't Seagate went private and IPO again in 2002 ? Perhaps the same script is being played out...

 

[Unpilot]

Tesla’s Elon Musk just invited a big lawsuit

Front page news on Yahoo. They really think he would tweet something like this without making sure he had it lined up??

 

[neroden]

Ok that means the shorts’ losses are capped since they’ll be able to buy enough from them. It’s actually super bulls with high strike calls that will eat the biggest losses. How about convertible bonds > $420?

Going private is probably an "event" for the purposes of the convertible bond prospectuses. I haven't read that part of the prospectus in detail (Brian has, perhaps?). I think Musk has to have worked things out with the major bondholders; he's made buyback deals and trade-for-shares deals before.

Actually in this kind of deal I think each class of bondholders has to approve the deal in *addition* to the shareholders approving the deal.... if I'm remembering correctly... so that's a lot of voting...

 

[sub]

Ron Barron asked if he would sell and he said “no way, we want our firm to be part of any deal” per CNBC

 

[UnknownSoldier]

As a long term holder of TSLA I'm fine with this. I appreciate the opportunity to take share in the private company.

The downsides:

- no more stock option trades (I like to sell time value, Puts and Calls alike); TSLA offered fabulous premiums most of the time
- less liquidity
- probably not marginable, just cash; thats a big one, because just the option of getting into margin gives me peace of mind when liquidity gets thin
- no more TSLA investor discussions on TMC
- what to do with the spare time?

Maybe we should start discussing other stocks/trading strategies. Anybody want to suggest a proper venue?

Well I mean we're still owners of the cars. I'm not going anywhere because I own the car.

 

[neroden]

inexperienced hobby trader writing here.

85%+ of float is held by institutions

How are they going to vote for the going-private? Since consensus here seems to be that most of them cannot hold private equity.

There is a serious possibility that they'll vote against it...

Will them selling off their shares soften out the price rise when shares start to cover?

Probably.

 

[Fact Checking]

Front page news on Yahoo: "Tesla’s Elon Musk just invited a big lawsuit"

My guess is the short hedge funds are calling in every favor they are owed by every journalist, because for them this is a real bankruptcy event, not a bankwuptcy event.

Gonna get ugly, but if the funding deal is real (and I cannot see how Elon could tweet that without having it secured) then they are screwed and the whining of the shorts doesn't matter whatsoever.

 

[Mario Kadastik]

When the conversion happens you get $0. Call options are not equal to shares. They are contracts for you to buy shares sometime in the future, provided TSLA is still publicly traded at that time. Now you might be able to exercise the option early, converting the contract to shares. If you bought those calls and executed them that would mean you bought TSLA at $400.75. Why would you want to do that, given you could just buy TSLA shares directly on the open market for less than that (current price in the after market is $378).

Because of leverage. I bought 360-420 and 370-420 call spreads. First after Elon tweeted and second when market resumed trading. Got them for 23.5 both. Yes, the entry is higher than buying stock outright, but I put down 4.7k and if the deal happens will get 11k. That’s about 180% gain. Had I bought stock i’d make less than 20%...

 

[Dan Detweiler]

So what do you guys think will most likely happen to the stock price in the interum? Does it continue to rise? What happens if it approaches or even exceeds the 420 mark? Is the the deal cancelled at that point? Do they issue a higher buy out price? Again, my ignorance is astounding. Please help.

Dan

 

[Johan]

Because of leverage. I bought 360-420 and 370-420 call spreads. First after Elon tweeted and second when market resumed trading. Got them for 23.5 both. Yes, the entry is higher than buying stock outright, but I put down 4.7k and if the deal happens will get 11k. That’s about 180% gain. Had I bought stock i’d make less than 20%...

This if of course correct. The post I was replying to seemed to assume that holding a call on the day where the deal happens would be equal to holding a share (or 10 shares per call) which of course it wouldn't be.

 

[Bobbyducati]

So what do you guys think will most likely happen to the stock price in the interum? Does it continue to rise? What happens if it approaches or even exceeds the 420 mark? Is the the deal cancelled at that point? Do they issue a higher buy out price? Again, my ignorance is astounding. Please help.

Dan

have to believe it will go up and should cap out at 420. logic dictates that the stock should be worth 420, and no one would pay more than that. but logic doesnt always win...?

 

[W84M3]

I m 99% sure I wont be able to hold onto my shares - as I obviously would - with my broker and will be forced out at $420 :-(

 

[MP3Mike]

I don’t understand what “funding secured” means in this case, since no WS investment banks seem to be involved. Are we assuming EM has already line up private funding? Doesn’t there need to be a prospectus for that? This is all so confusing.

He said "Investor support is confirmed." That is his private "funding". Lining up the people/group that will buy Tesla.

Elon already confirmed shareholders support this deal.

No he didn't. He said "Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote." In that he means the investors that would be buying and taking Tesla private, not the current shareholders. (Which is why he says it needs a shareholder vote.)