2017 Investor Roundtable: TSLA Market Action

[TMSE]

It's Chris Lattner.

Thanks!

 

[Nate the Great]

For what it's worth we have fallen off the list of most actively traded option.

Today's Most Active Options

 

[neroden]

If short sellers are not able to buy shares they are in default, and Fidelity is on the hook. This risk is designed to be addressed by requiring short sellers post collateral, usually around 105%, so that Fidelity can purchase shares using this collateral. The required value for this collateral is being updated daily. But if SP jumps 10-15% or more intraday, Fidelity can potentially be left with collateral which can't cover purchasing the same quantity of shares that they lent out.

I read Schwab's documents. You are lending to Schwab. (Schwab then lends the shares onward.) Schwab is still obligated to buy and return the shares even if the collateral is insufficient. Only if *Schwab* can't find the shares at any price, or *Schwab* goes bankrupt, do they hand you the collateral instead. They're not allowed to voluntarily default. Nor would they want to default. If they have to buy the shares back at a high price, they can claim the cost of the shares out of the account of the short-seller, and can in fact go after the short-seller's other assets (home, car, etc.), so they have a strong incentive to buy back the shares at any price and assign the cost to the short-seller.

It's a possibility -- could happen in a Crash of 1929 scenario or in a genuine "there are only X shares in the hands of longs who are willing to trade at any price and there are more shares sold short than that" short squeeze -- but is highly unlikely. There hasn't actually been a short-squeeze like that in my lifetime. Generally in a short-covering rally, as the stock price goes higher, more people are willing to sell and *eventually* the broker can find shares at some price. And it's fairly unusual for brokers to go bankrupt, too.

 

[neroden]

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.

Even the VW/Porsche short squeeze wouldn't have actually converted you to cash. Short-sellers *thought* there weren't enough shares on the market to cover their positions... but there actually were. The short-sellers had misread a misleading document by Porsche, which had described the large number of options they'd acquired, without specifying that the options could be *cash-settled*.

 

[neroden]

Realistically, default is extremely unlikely to happen but I want to sleep well at night in case a short squeeze ever materializes

You gotta do what lets you sleep at night.

A black swan event for short sellers is not that unlikely

After reading through the way brokerages handle short-sellers...

The brokerage has the right to forcibly close the short position at any time. For any reason or no reason. If the account is short on cash, the brokerage has the right to forcibly sell any other stocks in the account to raise cash to do so. If the account is short on total value, the brokerage has the right to go after the short-seller's other assets (any other financial accounts; house; car; etc.).

I think the shares get returned to lenders in almost all scenarios.

I admire short sellers in that they either have nerves of steel or they are clueless, probably both which is an extremely dangerous combination

Given that they literally sign over the right to close their short positions *at any time and any price for any reason* to the brokerage, I suspect most of them are pretty clueless. That's an extremely risky thing to do.

 

[Nate the Great]

Premarket is down quite a bit.

 

[neroden]

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.

Not really.

They get in trouble after 6 days, and are actually prohibited from continuing to do market-making in the stock after 35 days.

i am totally with you. i recalled all my shares from Fidelity today. i will not take a chance of losing my position. plus as long as my shares were lent out i could not increase my margin. i should be able to now as soon as my lent out shares are returned, hopefully by tomorrow AM. TSLA is basically an accident waiting to happen for short sellers

Um, TrendTrader, when you increase your margin by using TSLA shares as marginable shares.... they lend your shares out. You end up facing the same (fairly tiny) default risks you would with the Securities Lending Fully Paid program. Just a heads up.

 

[vgrinshpun]

Looks like yesterday was day of very light shorting activity at Fidelity, with the overall day of net covering. Pretty active borrowing activity today pre-market, slightly lower than the most active day this week, Tuesday.

 

[racer26]

Anybody with better charting tools than me have a number for where the bottom of our rising channel is at close today? Seems to me we're flirting with it, if not below it currently.

 

[Lump]

Morgan Stanley has a note out today

There is no way to quantify the value (if any) of Tesla management’s advisory relationship with the new administration. And to be clear, we would not expect any favorable treatment towards Tesla Motors regardless of Elon Musk’s position as a strategic economic advisor and one who may provide counsel to the President and his economic team on a regular basis. However, as a highly visible and fast growing US jobs creator with a strong emphasis on domestic manufacturing in value-added sectors, an objective the Trump administration has publicly prioritized, we believe the relationship is significant.
It's often forgotten that Musk isn't just a visionary — he's an opportunist.
Morgan Stanley analyst says don't invest in Tesla because of Trump

 

[vgrinshpun]

Looks like we'll have a repeat of bump into the lower boundary of the regression channel similar to what we had 4 weeks ago. If somewhat similar pattern emerges, TSLA might close around $250 today, move sideways on Monday and then takes elevator up to the upper boundary. We are also a couple of trading days away from the bullish SMA(50) and SMA(200) crossover.

 

[esk8mw]

OK everybody - as promised, I exited my 250/255 strangle at a loss. The SP will now exit the 250/255 channel. Hopefully to the upside, but IMO seems headed for a short-term correction.

 

[Lump]

White House says Musk, CEOs of Ford, GE will join Trump manufacturing council

Elon Musk Has Trump’s Ear, and Wall Street Takes Note
https://www.nytimes.com/2017/01/26/business/elon-musk-donald-trump-wall-street.html?rref=collection/timestopic/Stewart, James B.&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=collection&_r=0

 

[NOLA_Mike]

Anybody with better charting tools than me have a number for where the bottom of our rising channel is at close today? Seems to me we're flirting with it, if not below it currently.

The uptrend sort of accelerated 2 weeks ago (and we broke below that) but the longer term one is still in tact.

 

[1kEE]

I'm thinking mid-251 close....

 

[Runarbt]

I'm thinking mid-251 close....

It was mentioned yesterday on stockwits that someone bought friday 247 puts worth $1.2 million.
If this buyer has some powerfull friends, we might be looking at a sub 247 close.

 

[neroden]

I was actually seriously surprised to see such a strong start-of-year run up, even though January usually has a run-up in all stocks.

I was not expecting a major runup until Q4 earnings (which I personally expect to be positive).

Due to FOMO I loaded up during the runup. I'm a long-termer though, I'm willing to wait out the dip.

 

[Hogfighter]

We might be seeing some stop losses kick in to lock in gains.

 

[vgrinshpun]

Looks like IBD, which as I understand has pretty wide subscription base, put Tesla on their watch list, with buy point at ... $269.44:

"Watch to see if the stock holds above the critical 250 level, where for months Tesla had had trouble penetrating. Given the long basing action, the stock is now within real striking distance of surpassing a potential 269.44 buy point."

As a follow up on my pre-inauguration strategy post, I've initially hedged my Jan 20 strike Calls ($190,$220, $230) by selling upper portions of the spread, some right before inauguration, some after, and originally formed the following spreads:

$190-$250
$220-$240
$220-$245
$220-$250
$230-$245
$230-$250.

I then rolled out and up these spreads, while pulling out some cash, and currently hold Feb 03 spreads:

$197.5-$260
$222.5-$260
$232.5-$260
$235-$260

I am planning to watch whether we stay in the regression channel I showed in the post up-thread, and currently thinking instead of closing (or letting these spreads expire in case they are completely ITM) to may be try rolling them out while expanding them... I am rooting for TSLA to bust through the IBD buy point.

 

[neroden]

It was mentioned yesterday on stockwits that someone bought friday 247 puts worth $1.2 million.
If this buyer has some powerfull friends, we might be looking at a sub 247 close.

Really depends on who sold 'em. I know *more often than not* the buyer is the one making a directional bet and the seller is a market-maker, but it could of course be the other way around, or *both* sides of the trade could be making directional bets.

Maximum-pain.com, the "options walls" say that the market makers want a Friday close above 250 and below 260. Max pain is at 250.

Have you considered that someone might be selling $1.2 million in $247 puts for the cash income, expecting them to expire? This would be... daring.