2017 Investor Roundtable: TSLA Market Action

[AudubonB]

Moderator Input:
I've been a bit distracted past few days (see Model X "P100D Order" thread!!!!) BUT:

there have been far too many non-"Market Action" posts here since this past weekend. Now, I'm not going to move them over to the "General" thread, let alone delete them, but esp. because in general you all have been really good this month in keeping the two threads from overlapping, PLEASE confine comments to the appropriate threads.

Thanks very much. Carry on.

 

[mmd]

Here we are again, praying for a short squeeze The last epic squeeze for the SCTY merger was the worst one ever! Regulation SHO is worth a read before getting too excited. Market makers can hold naked shorts for many days to provide liquidity in the market.
Key Points About Regulation SHO

 

[MitchJi]

Um, that doesn't compute. The short squeeze is an abrupt and violent event. If it hits, it'll hit fast. You hope to actually be around and catch it unfold? I'd assume the answer is exactly the opposite -- take profits on anything leveraged and either sit out for a bit or just buy stock.

I'm suggesting that if you think that a squeeze is likely a good way to position your self for it is to be in leaps rather than stock, assuming that you are extremely confident that the SP will be substantially higher by mid 2018.

 

[geneclean55]

Futures looking good again (so far). I wonder if TSLA will respond better tomorrow after cooling off today if we have another general market up day.

 

[Incredulocious]

Oh good grief, read my post one more time - it is about shares that are OWNED by Fidelity and lent out, not client's shares.

My apologies to you, vginshpun. My "oh good grief, that's not true" post was not directed at you. I intended to select the two posts before yours from chickenlittle and TrendTrader007 about recalling shares over the worry about missing out on a short squeeze but I screwed up in doing so too quickly on my phone. Of course perhaps chickenlittle and TrendTrader007 may now be annoyed with me. Anyway, as someone else mentioned, kudos to chickenlittle in getting folks to recall their shares!!

Also, here's a recent thread on the topic:
What are the risks involved with lending out your TSLA shares?

Now, what do you mean vginshpun about Fidelity and other brokerages wanting to limit their risk to a short squeeze? How are they at risk from a short squeeze? Further, my understanding is that if they chose to recall shares to reduce how much they have lent out, the problem is for those holding short, not for those lending the shares.

 

[Incredulocious]

Thanks for the heads up, I hadn't thought of that. Just called my broker to get the shares back, he asked if I'd heard something someone was typing on an Internet forum and said multiple people had called today to do the same.

I'd like to hear what your broker thought of people's worries over missing out on a short squeeze by having their loaned shares swapped for cash.

 

[dakh]

I'm suggesting that if you think that a squeeze is likely a good way to position your self for it is to be in leaps rather than stock, assuming that you are extremely confident that the SP will be substantially higher by mid 2018.

Yea that makes sense. I thought the question was about what to do if the squeeze actually happens.

 

[Incredulocious]

I'm going to agree with Chickenlittle on this one. Here is a disclaimer from my IB statement: I'm recalling my shares.

Notes

1. Important Notice re: SIPC Protection for Loans of Fully Paid and Excess Margin Securities: Please be aware that if you execute loans of your fully paid or excess margin securities, the provisions of the Securities Investor Protection Act of 1970 may not protect you with respect to the securities loan transaction. Therefore, the cash collateral credited to your account by Interactive Brokers (see above) may constitute the only source of satisfaction in the event that Interactive Brokers cannot return the securities.

I read this differently than you. It says to me that if you were to try to sell or recall your loaned shares, and they cannot return the shares, the cash collateral may be all that you receive (as opposed to the shares you wish to recall or sell). It doesn't mean to me that Interactive Brokers will decide they need to return the securities to you (and can't) if you never requested them.

 

[Incredulocious]

you never know how many shorts will default on their obligations when the time comes, with tesla being one of the most heavily shorted companies in history anything could happen any day.

What do you mean? How can "shorts default on their obligations"? I mean, yay for a short squeeze, where many short holders are forced to cover their position by their brokers due to a quickly rising stock price, driving the price even further... but it's not like they can say, "nope, never mind, I didn't really mean to short that stock".

 

[dc_h]

What do you mean? How can "shorts default on their obligations"? I mean, yay for a short squeeze, where many short holders are forced to cover their position by their brokers due to a quickly rising stock price, driving the price even further... but it's not like they can say, "nope, never mind, I didn't really mean to short that stock".

Example: A small hedge fund run from a parking garage in Manhattan has 5 million to invest and is up 35% in 2016, with Tesla sideways for the year. Some smart in and out trades and a twitter monkey can do pretty well. Fast forward 2 or 3 months and that highly leveraged short specialist has doubled down on Potemkin Tesla, but those $220 puts he bought are way in the red. At $250 with 1000 short contracts, 5 million could suddenly be 2 million, and at $260 1 million and $270 Fidelity is going to force him to sell. If the price shoots past $270 and settles at $280 before Fidelity clears out the positions, or can't close the position because there is no stock available to close the short, then your loaned shares may not be returned, but perhaps you get a cash settlement at $270, where the other side of your short sale went bust.
I am probably explaining it, or understanding it poorly, but the premise is that in a short squeeze, the other party who is borrowing your shares has gone broke and can't repay you.
PS: I'm slightly amused to think that some bot is reading this and realizes that a short squeeze is underway and puts in an order for 100,000 shares to ride the wave.

 

[adiggs]

Example: A small hedge fund run from a parking garage in Manhattan has 5 million to invest and is up 35% in 2016, with Tesla sideways for the year. Some smart in and out trades and a twitter monkey can do pretty well. Fast forward 2 or 3 months and that highly leveraged short specialist has doubled down on Potemkin Tesla, but those $220 puts he bought are way in the red. At $250 with 1000 short contracts, 5 million could suddenly be 2 million, and at $260 1 million and $270 Fidelity is going to force him to sell. If the price shoots past $270 and settles at $280 before Fidelity clears out the positions, or can't close the position because there is no stock available to close the short, then your loaned shares may not be returned, but perhaps you get a cash settlement at $270, where the other side of your short sale went bust.
I am probably explaining it, or understanding it poorly, but the premise is that in a short squeeze, the other party who is borrowing your shares has gone broke and can't repay you.
PS: I'm slightly amused to think that some bot is reading this and realizes that a short squeeze is underway and puts in an order for 100,000 shares to ride the wave.

As a thought experiment to understand theoretical risk, I think this will do. However it misses a critical element of the overall market relationship. As a lender of shares, my counterparty is NOT somebody who has decided to short the stock. My shares are borrowed by Fidelity (my case - or IB, or Schwab, or some other brokerage) who then lends them out to somebody else. If delivery time comes and Fidelity is unable to get shares back in order to return them to me, yes, that person that was short the company fails to deliver and will have all sorts of problems (the beginning of which is their brokerage has the power over their account to liquidate it in full in pursuit of attempting to satisfy their obligations; brokerages don't like to let things get anywhere near that close normally).

Whatever troubles Fidelity has in locating shares to return to me, if they are unable to return my shares when called on to do so, then it is the brokerage that is defaulting on the shares they've borrowed. The cash collateral is a backstop to Fidelity (or whoever) defaulting. So now you're up into bankruptcy range for the brokerage and if that happens, then yes, the cash collateral allows me to be made whole, where whole = "sold my stock at yesterday's closing price".

One calibration that is happening every day at the close of the market is the cash collaterial is adjusted to that day's closing price.


In your particular example, there actually isn't any incremental risk to the small hedge fund or their conterparties. The purchased puts can go to zero and the hedge fund with it (so there's that risk), but nobody else has any additional risk. in fact, the people that sold the puts will be pretty happy when they go to zero

I figure you were really intending a thought experiment in which the sm. hedge fund sold shares short (sell to open), so they are maintaining a short position via short shares, and as the stock price has gone up, the value of their position has gotten worse and worse.

 

[3Victoria]

Yeah, but you get $270, even if the SP goes to $500.

 

[Nate the Great]

Futures looking good again (so far). I wonder if TSLA will respond better tomorrow after cooling off today if we have another general market up day.

We will see I was expecting a trade sideways today (Thurs) , and a rally tomorrow (Fri).

 

[Irishjugg]

Example: A small hedge fund run from a parking garage in Manhattan has 5 million to invest and is up 35% in 2016, with Tesla sideways for the year. Some smart in and out trades and a twitter monkey can do pretty well. Fast forward 2 or 3 months and that highly leveraged short specialist has doubled down on Potemkin Tesla, but those $220 puts he bought are way in the red. At $250 with 1000 short contracts, 5 million could suddenly be 2 million, and at $260 1 million and $270 Fidelity is going to force him to sell. If the price shoots past $270 and settles at $280 before Fidelity clears out the positions, or can't close the position because there is no stock available to close the short, then your loaned shares may not be returned, but perhaps you get a cash settlement at $270, where the other side of your short sale went bust.
I am probably explaining it, or understanding it poorly, but the premise is that in a short squeeze, the other party who is borrowing your shares has gone broke and can't repay you.
PS: I'm slightly amused to think that some bot is reading this and realizes that a short squeeze is underway and puts in an order for 100,000 shares to ride the wave.

Those types of strong ai bots are a few years away yet . Technically I can't guarantee that no one has written an almost general ai yet, but it seems unlikely.

 

[Irishjugg]

Example: A small hedge fund run from a parking garage in Manhattan has 5 million to invest and is up 35% in 2016, with Tesla sideways for the year. Some smart in and out trades and a twitter monkey can do pretty well. Fast forward 2 or 3 months and that highly leveraged short specialist has doubled down on Potemkin Tesla, but those $220 puts he bought are way in the red. At $250 with 1000 short contracts, 5 million could suddenly be 2 million, and at $260 1 million and $270 Fidelity is going to force him to sell. If the price shoots past $270 and settles at $280 before Fidelity clears out the positions, or can't close the position because there is no stock available to close the short, then your loaned shares may not be returned, but perhaps you get a cash settlement at $270, where the other side of your short sale went bust.
I am probably explaining it, or understanding it poorly, but the premise is that in a short squeeze, the other party who is borrowing your shares has gone broke and can't repay you.
PS: I'm slightly amused to think that some bot is reading this and realizes that a short squeeze is underway and puts in an order for 100,000 shares to ride the wave.

Love the specificity of your description of stran.. I mean some random likely to go bust hedge fund.

 

[Nate the Great]

Here is a link for most active options.

Today's Most Active Options

TSLA Calls 51.4% Puts 48.6% Contracts 119,572.

Slightly greater amount of calls further indicating a bull market.

 

[Jonathan Hewitt]

Graphical version.

 

[Nate the Great]

Short Interest at open.

Shares 56,776 Rate 2.000 %

 

[vgrinshpun]

Today is the first day that there was replenishment of shares available for ordering in pre-market.

 

[TrendTrader007]

For every $50 this stock goes up I make a cool million in profit. So I'm not putting my position even at a smallest possible theoretical risk of being converted into cash at yesterday's close in case of a VW/Porsche like short squeeze.
Yesterday I recalled all my lent out shares at Fidelity and instructed them not to lend out my shares anymore
I'm happy to give up over $3600 interest income per month on my shares as long as I have peace of mind that my shares are safe in case of a short squeeze whether or not it comes
Long term I know TSLA will make me millions (it already has made me over a million in profit in about 5 weeks) so 1% interest income means nothing to me. I'll keep all my shares till kingdom comes. Thank you very much