@jesselivenomore fascinating series of posts. Correct me if I’m wrong but this is how I’m understanding it. Basically, the strategy is to pile on a big short position during time of company weakness/mishaps, and engage in comprehensive information/propaganda campaign to discredit company so as to shut company out of debt markets. Thus, making it extremely difficult for company to survive. And as company spirals down to bankruptcy, one becomes very rich. Rinse, repeat for the next company.
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Elon Musk vs. Short sellers
- Thread starter jesselivenomore
- Start date
Self-fulfilling prophecy
This is not the case for every company. If McDonalds were shut off from the debt markets and capital markets, it would not matter because they have a sizable cash horde and positive cash flow. No matter the amount of fear generated in the markets, there is no "bank" to run-on.
This is why short sellers like Jim Chanos target financial and insurance companies, they are beholden to the capital markets, and in his own words, once you create a "crisis of confidence", the story plays itself out. Fairfax was this way. Solarcity, due to its financial model, was this way.
Tesla is this way as well, for now.
The day that Tesla announced the Gigafactory, in a way, it became like a financial company. This is because from then on they were tied to years of capital expenses without any immediate return. To expand the company on top of that, while developing and tooling up for the Model X, Tesla Energy, service centers and superchargers, while all this was paid for only by the Model S. The company cannot possibly fund this on its own, so it has been depending on the capital markets since. The day after announcing the Gigafactory, TSLA hit $265. I don't think it is a coincidence that it spent the next three years largely below this level with only two brief stints up to $280s. I also don't think it was a coincidence that only after 1/4/17 when Tesla announced that the Gigafactory was finally online did share price eventually break through to a higher range. (there were other factors including Tencent investment and anticipation for Model 3).
However, due to Model 3 delays, and the enormous costs associated with ramping, Tesla arrived at a "cash valley" right before Model 3 really ramps up. When you exacerbate this with the Moody's downgrade and shutting off the debt markets, Tesla once again is at a precarious position where self-fulfilling prophecies can come true. I became extremely cautious because I've seen this movie before when a ratings downgrade leads to a liquidity event, which was exactly the intent here.
A little background: I am a trader for a living and often use something called an analog as a tool. It is a comparison of two charts that mirror eachother. The idea is that stock movement is largely emotion driven in the short run, and if you can match two charts it may represent a similar set of emotions during those separate times, therefore leading to similar outcomes.
Probably what spooked me the most was this analog that I found:
Not only was Tesla trading in an similar overall shape to Solarcity did before it collapsed, the most recent candles after support was broken were near identical. I discovered this before reading the excerpt from The Divde and suspected that short sellers were using similar tactics on Tesla as they did when they broke Solarcity. After reading it, I can say with near certainty that it is the case.
I truly suspect/fear that if Tesla had made a turn lower after that last weekly bar it would have represented the bull narrative crumbling and the bear narrative taking on a life of its own - a self-fulfilling prophecy.
It DID NOT.
*last post coming: why the sudden urgency for profitability, job cuts, breaking free - pretty self explanatory at this point
This is not the case for every company. If McDonalds were shut off from the debt markets and capital markets, it would not matter because they have a sizable cash horde and positive cash flow. No matter the amount of fear generated in the markets, there is no "bank" to run-on.
This is why short sellers like Jim Chanos target financial and insurance companies, they are beholden to the capital markets, and in his own words, once you create a "crisis of confidence", the story plays itself out. Fairfax was this way. Solarcity, due to its financial model, was this way.
Tesla is this way as well, for now.
The day that Tesla announced the Gigafactory, in a way, it became like a financial company. This is because from then on they were tied to years of capital expenses without any immediate return. To expand the company on top of that, while developing and tooling up for the Model X, Tesla Energy, service centers and superchargers, while all this was paid for only by the Model S. The company cannot possibly fund this on its own, so it has been depending on the capital markets since. The day after announcing the Gigafactory, TSLA hit $265. I don't think it is a coincidence that it spent the next three years largely below this level with only two brief stints up to $280s. I also don't think it was a coincidence that only after 1/4/17 when Tesla announced that the Gigafactory was finally online did share price eventually break through to a higher range. (there were other factors including Tencent investment and anticipation for Model 3).
However, due to Model 3 delays, and the enormous costs associated with ramping, Tesla arrived at a "cash valley" right before Model 3 really ramps up. When you exacerbate this with the Moody's downgrade and shutting off the debt markets, Tesla once again is at a precarious position where self-fulfilling prophecies can come true. I became extremely cautious because I've seen this movie before when a ratings downgrade leads to a liquidity event, which was exactly the intent here.
A little background: I am a trader for a living and often use something called an analog as a tool. It is a comparison of two charts that mirror eachother. The idea is that stock movement is largely emotion driven in the short run, and if you can match two charts it may represent a similar set of emotions during those separate times, therefore leading to similar outcomes.
Probably what spooked me the most was this analog that I found:
Not only was Tesla trading in an similar overall shape to Solarcity did before it collapsed, the most recent candles after support was broken were near identical. I discovered this before reading the excerpt from The Divde and suspected that short sellers were using similar tactics on Tesla as they did when they broke Solarcity. After reading it, I can say with near certainty that it is the case.
I truly suspect/fear that if Tesla had made a turn lower after that last weekly bar it would have represented the bull narrative crumbling and the bear narrative taking on a life of its own - a self-fulfilling prophecy.
It DID NOT.
*last post coming: why the sudden urgency for profitability, job cuts, breaking free - pretty self explanatory at this point
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This is great! Thanks for giving the fairfax excerpt I originally posted, the much needed visibility and context as it relates to TSLA.
johnnybgood888
Member
Pardon my ignorance, but if one has accumulated a certain % of a company's shares, they have to file a notice with the SEC and be publicly disclosed, like when Tencent bought into TSLA.
Does something similar exist for shorts, if you are short a certain percentage of shares? If not, isn't that a oversight to not have someone who holds a large position whether it is long or short, to be publicly disclosed?
Does something similar exist for shorts, if you are short a certain percentage of shares? If not, isn't that a oversight to not have someone who holds a large position whether it is long or short, to be publicly disclosed?
Your effort is solid but this post essentially states "Tesla bonds were downgraded because Tesla missed the production guidance by over 90%, and that guidance was used for its credit rating"
I mean, i have no idea how you can complain about that
erthquake
Active Member
No, there isn't an equivalent regulation for shorts because they don't own shares. This is a significant problem in cases like these when shorting is meant to drive down the price. Mandatory Morning Dip (MMD) anyone?
ok, you say they’re doomed as a company. do you have an explanation, or narrative as to how this will unfold, and a timeline? id like to hear something other than the ever changing narrative that you hear in the media. i mean it’s happened to companies before, so anything’s possible. but i’d like to hear something other than just the usual buzz. if you have it, let us hear it. thank you.
Worth noting that just before the Moody's downgrade, someone(s) bought an enormous amount of way-OTM April 250 puts starting a couple weeks before the event and continuing right up to the day before. (from my trading notes)
Happened at this point on 3/14/18: (note red line at bottom - IV began to spike)
Here's the chart for the April 250p that day - almost 7k contracts bought in about an hour.
Seemed insane at the time, but time would eventually show that buyer knew something was going down.
But it didn't stop there. The next day ~5000 more contracts were bought. By 3/23/18, the open interest for April $250 puts was 14,518, and on 3/26/18, about 10,000 more were bought to open, when TSLA was at ~$300, along with 4,000 May $250 puts.
It's worth noting that putting these positions on before a huge selloff serves to accelerate the downward momentum, as the other party in the transaction (a market maker selling you the puts) must re-hedge their position constantly as the price sinks - they do this for puts they sold by selling (shorting) shares of the underlying - TSLA in this case. The shorter the time to expiration - in this case less than a month, the more shares must be shorted as price drops to remain delta neutral.
The primary point of this post is that April $250 put trade only made sense if the person buying those knew something was coming in the very near future that would plunge the stock below the major support at that time, around $290-300. Otherwise it's gambling with millions of dollars - and a far, far riskier version than that played by our resident bears here that own puts that expire in 2019 or 2020.
The outcome for that guy? A couple days after the Moody's downgrade, he rolled half his April $250 puts to May $250 puts, then sold those sometime before 4/3/2018. Likely made somewhere in excess of $10 million from an initial bet of $1-2 million, and did it in 2 weeks.
(About 4000 contracts)
Happened at this point on 3/14/18: (note red line at bottom - IV began to spike)
Here's the chart for the April 250p that day - almost 7k contracts bought in about an hour.
Seemed insane at the time, but time would eventually show that buyer knew something was going down.
But it didn't stop there. The next day ~5000 more contracts were bought. By 3/23/18, the open interest for April $250 puts was 14,518, and on 3/26/18, about 10,000 more were bought to open, when TSLA was at ~$300, along with 4,000 May $250 puts.
It's worth noting that putting these positions on before a huge selloff serves to accelerate the downward momentum, as the other party in the transaction (a market maker selling you the puts) must re-hedge their position constantly as the price sinks - they do this for puts they sold by selling (shorting) shares of the underlying - TSLA in this case. The shorter the time to expiration - in this case less than a month, the more shares must be shorted as price drops to remain delta neutral.
The primary point of this post is that April $250 put trade only made sense if the person buying those knew something was coming in the very near future that would plunge the stock below the major support at that time, around $290-300. Otherwise it's gambling with millions of dollars - and a far, far riskier version than that played by our resident bears here that own puts that expire in 2019 or 2020.
The outcome for that guy? A couple days after the Moody's downgrade, he rolled half his April $250 puts to May $250 puts, then sold those sometime before 4/3/2018. Likely made somewhere in excess of $10 million from an initial bet of $1-2 million, and did it in 2 weeks.
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erthquake
Active Member
Ok, @zmarty @johnnybgood888 @EinSV
Why are you disagreeing with the article that Musk agreed with:
Elon Musk on Twitter
It is pertinent to the topic and the only thing I wondered about myself is why 3 weeks. I am not a short, in fact I have a small $10k position, so all this disagreeing seems rude. Is this a signature treatment for new guests in the Investor Discussions? A sign of intolerance if a praise is not sung right on the entrance?
Why are you disagreeing with the article that Musk agreed with:
Elon Musk on Twitter
It is pertinent to the topic and the only thing I wondered about myself is why 3 weeks. I am not a short, in fact I have a small $10k position, so all this disagreeing seems rude. Is this a signature treatment for new guests in the Investor Discussions? A sign of intolerance if a praise is not sung right on the entrance?
zmarty
Member
We are not disagreeing with the article. See the post just below yours.
To be frank, it's probably not even on their radar. They've not only got bigger fish to fry, but I see this kind of thing happen literally every single day to all kinds of different stocks. The magnitude here raises an eyebrow, but it's by no means isolated to TSLA.
JRP3
Hyperactive Member
Let's not take the bait and dilute this thread with a bunch of back and forth with a bear. There are plenty of other places in the subforum to do that. I think derailing an excellent new thread might even be the main intention.
OK, that does it, you're blocked. And you should be banned. You know better.
Musk has made it 100% clear what his goal is: to save humanity from extinction, because as he said, he doesn't want the future to be sad. He even opened one of the biggest press events for Tesla with... a rather dry lecture about CO2 emissions and global warming. Which is not what you'd do if you had any other goal.
It is perhaps plausible to think that Musk is crazy (really, is colonizing Mars a practical way of preventing human extinction? perhaps not), or even that he's being dishonest in pursuit of this goal (ends justify the means) -- but the goal is not disputable by anyone who's ever paid any attention to him whatsoever.
It does not have to be disclosed and yes, this is a loophole about which people have complained in the past.
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