General Discussion: 2018 Investor Roundtable

[Earlian]

@Reciprocity

I also hold call options with the rest value of 10$. But since they cannot fall anymore, I’m holding them till the end. So shorts won’t get any of it.

My biggest portion are real shares (and meant to stay), so in the end it looks like I’m going out of with +/- 0 (if I can’t convert my European shares), while the outlook was so promising this year.

The timing of the buyout is best called unlucky, especially for all who placed their bets pro Tesla and ignored the loud bad press echo.

But who knows? Maybe it’s better to get out of the market this year even for all of us.

 

[neroden]

I still think the timing of the buyout proposal announcement was related to fears of a hostile takeover from Saudi Arabia. It just seems too close to be coincidental.

 

[Reciprocity]

I disagree with your base premise. I think the $420 guarantee (if the deal goes through) increases the likelihood of non-going-private sellers using high ask prices to maximize profits. Everyone knows the shorts will have to cover/ buy, so why settle for $421?

Who knows the shorts will have to cover? The deal is a long ways from knowing that. Once there is a vote and people actually know that, then they will be forced to cover. Until then, nothing changes except that they can now purchase cheap insurance that was completely unavailable before yesterday after 3pm EST. It did not existing until the price was set at 420. And if anyone thought it would go above that, the calls wouldnt be worth 1/4 what they where before the halt, they would have rebounded if they actually believed the price will go substantially above 420. At some point, if there is a squeeze, they will recover, but this will bail out shorts.

 

[erthquake]

I still think the timing of the buyout proposal announcement was related to fears of a hostile takeover from Saudi Arabia. It just seems too close to be coincidental.

Probably had more to do with the SA news spiking the stock price so high that the $420 buy level wouldn't look like an acceptable premium to current shareholders. Tesla has been working on this for a while. Elon might have hastily announced it to stop the stock run so that $420 backer wouldn't have to bid higher.

 

[Foghat]

Who knows the shorts will have to cover? The deal is a long ways from knowing that. Once there is a vote and people actually know that, then they will be forced to cover. Until then, nothing changes except that they can now purchase cheap insurance that was completely unavailable before yesterday after 3pm EST. It did not existing until the price was set at 420. And if anyone thought it would go above that, the calls wouldnt be worth 1/4 what they where before the halt, they would have rebounded if they actually believed the price will go substantially above 420. At some point, if there is a squeeze, they will recover, but this will bail out shorts.

Is there a time period when shares will all be called back? Can the millions of shares short be sold/bought in an orderly fashion? If not, isn’t a short squeeze inevitable as more confirmation that this privatization will happen?

If this shareholder vote happens within the next couple weeks and privatization at $420 valuation is supported/confirmed, how much can shorts recover?

$420 seems like more of a baseline, then a ceiling, since shareholders hold the cards over short traders now. If confirmed by the vote or before the vote that this will happen, why would any shareholder sell at all below $420 since their is a time sensitive need for short traders to buy back borrowed shares? They have to buy, but shareholder’s have no time pressure incentive to sell since back drop of $420 is there as well as the option just to keep ownership.

Shorts have no leverage whatsoever when privatization vote is confirmed.

The only thing they have is that privatization doesn’t happen, whatever they can do to prevent privatization confirmation from happening and that is quickly becoming less probable as literally the hours pass.

The rate at which they would need to cover, seems not quick enough to prevent a significant loss given the shareholder incentive to hold.

Shareholders hold the short trader cards, now seems like a matter how high this can go over $420 in the coming weeks.

 

[jkirkwood001]

Im sorry, but this 420 price is a serious problem. For one, it caps the stock at 420 from my point of view. The reason is that many funds will have to exit the stock before the deal is completed or wait until the deal is done at sell at 420, they will want to exit at the highest price so every time the stock goes above 420, it makes more sense to sell at that point rather then to wait for the deal to close. This is enough supply to cap the squeeze at just over 420. The deal must happen to force covering, otherwise they just wont cover.

Because the 420 is a cap, the shorts have a known loss that is 10% higher then today's price. They can short at will have almost no downside beyond the 10%. Clearly today's price action shows that shorts could get out at anytime.

Here is the worst part. Because the price is capped at 420, everyone who had long dated calls are crapped out. They are going to 0. As they go to 0, shorts can buy these calls for Squeeze insurance. They have already dropped to 1/4 the value before the stock was halted. What does this mean? If there is a squeeze, shorts can cash in the calls and clean house. If the deal fails to go through, they can also profit from the calls because they will return to normal values. If the stock price collapses because it turns out Elon never had any real funding, then they are going to clean house on the short position. Elon has basically gifted Shorts an out while screwing anyone who was long with calls.

If there is a squeeze, the shorts can sell the calls they bought for pennies on the dollar.

If there is no squeeze and the deal goes through, they can cover and the funds will bail them out.

If there is no deal and the stock stays elevated, then the shorts can add to their short and mop up profits on the calls as they return to normal.

If the SEC finds an issue with the announcements or there is an issue with the funding, shorts will get bailed out by the stock price dropping to 200.

I dont know what Elon was thinking, but this is absolutely terrible for anyone who was long Tesla with options and a complete bailout for shorts smart enough to buy insurance.

You know more about trading than I do, but here's how I rationalize it:

• The plan does penalize long options traders. Learn ya to be speculative, no? Those who just own shares aren't especially negatively affected, as they will be able to sell at a profit or keep with hopes of increased value.
• I've heard this argument about the shorts. Perhaps that's the price to be paid for Elon to get them off his back. He would like to hurt them more, but he's more strategic than that and would love to get rid of them. This route gets rid of them - much more worthwhile and less petty than revenge.

 

[EV forever]

Who knows the shorts will have to cover? The deal is a long ways from knowing that. Once there is a vote and people actually know that, then they will be forced to cover. Until then, nothing changes except that they can now purchase cheap insurance that was completely unavailable before yesterday after 3pm EST. It did not existing until the price was set at 420. And if anyone thought it would go above that, the calls wouldnt be worth 1/4 what they where before the halt, they would have rebounded if they actually believed the price will go substantially above 420. At some point, if there is a squeeze, they will recover, but this will bail out shorts.

Wouldn't the shares have to be called back just for the shareholder to participate in the vote? Someone posted previously that if the shares have been loaned out by the owner to be shorted, then those shares are not eligible to vote. Once it is confirmed beyond doubt that Elon has the funding truly secured, the SP will spike, close to if not above 420. Next would be the shareholder vote - for this the loaned out shares will need to be called back if the institutions doing the loaning want to be a part of the vote. Who is going to be willing to sell to the shorts at that point? With high demand and low supply, the SP spikes again. This is what will lead to the short squeeze and is going to take some time to get done.

 

[shootformoon]

Is it possible for somebody to open a new ETF, which only invest in tsla private shares? And people/funds that can not keep private shares can convert 1:1 to this new tsla ETF. And the ETF would provide liquidity by charging a yearly 0.5% fee?

 

[Foghat]

Elon tweet has more viewers then any Reuters article of a press release.

The standard is broad dissemination, Elon’s 420 tweet probably has had over 100m+ impressions thus far, which far exceeds what a press release through a traditional outlet would provide given he has over 22 million follower audience and then the audience of those people that provide thousands of likes and retweets along the way.

Again, Elon has an extensive track record of releasing company information over his twitter account, we’ve been down this SEC inquiry before, I remember this same situation happening as far back as his famous November 2012 tweet.

The amount of hive mentality around this SEC inquiry demonstrates the desperation of these traders. Exactly the reaction the options world would produce. There is exceedingly increased potential for further foul play. I hope many legal eyes will be watching those aiding and abetting short trader activity right now.

It would be amazing if our regulatory bodies support short traders that pursue nefarious activities in order to save their bet on destroying an the number 1 growing American car manufacturing and American new energy company in our country.

 

[bhtooefr]

Is it possible for somebody to open a new ETF, which only invest in tsla private shares? And people/funds that can not keep private shares can convert 1:1 to this new tsla ETF. And the ETF would provide liquidity by charging a yearly 0.5% fee?

I don't see how that helps Tesla one iota.

They want to restrict the ability to trade the shares, and push the shorts out of the trade, while letting people stay invested.

An ETF can be traded just like any other public share, including shorting it.

Going dark makes it harder to trade (with some problems with holding it in some cases), going private makes it very hard to trade (with bigger problems with holding it in some cases).

 

[sub]

I’m fine either way with Tesla, I’ll stay with the private investment if that happens and I’ve bought extra shares in case it does.

There is no way Tesla/Elon could avoid not hurting some longs (options, retirement accounts, foreign investors) but the company decisions can’t be made based on this small minority situation. I was lucky, my option positions were in the 340 range and I exited fairly quickly and bought shares with those funds.

I’ll miss being able to trade the ups and downs of Tesla to acquire more shares and I’ll miss the entertainment, but I sure won’t miss the haters and would love to see them take as much pain as possible on the way out the door.

If the deal falls through for legitimate reasons (not for lack of funding) TSLA May take a short term hit before resuming business as usual. The businsss has not fundamentally changed.

 

[neroden]

We've documented that there are a *lot* of foreign investors -- but it seems like those who hold shares in after-tax accounts will be fine and can keep the private equity.

I don't think Musk cares about options holders, who are speculators.

The big issue is retirement accounts. (And other similar "tax break" investment accounts.) It's really normal for people to have all their money in their retirement accounts, and if they're under 65 (in the US, other ages in other countries) they can't get it out of the retirement account. This could be a *very* large percentage of the retail investors.

I hope Musk can find a solution for at least the *majority* of these -- a "Tesla IRA Custodian" who provides IRAs, Roth IRAs, etc, but whose only investment options for IRAs are private Tesla stock + cash, might be the best solution for most of the US population.

Nothing can be done about 401ks where the employee is still working for the company. There seems to be nothing to be done for Canadian retirement plan holders. I don't know about the UK ISA or the various European retirement plans.

The other big issue is the "accredited investor" rules. Most of the non-accredited investors might be forced to cash out, and apparently this US rule applies to foreigners as well. I'm not seeing a great way around this but there may be one I haven't seen.

 

[shootformoon]

I don't see how that helps Tesla one iota.

They want to restrict the ability to trade the shares, and push the shorts out of the trade, while letting people stay invested.

An ETF can be traded just like any other public share, including shorting it.

Going dark makes it harder to trade (with some problems with holding it in some cases), going private makes it very hard to trade (with bigger problems with holding it in some cases).

There is no point to short the ETF since it does not influence the SP of tsla and funding. The ETF just provides a vehicle for, say, foreign retirement account.

 

[kbM3]

We've documented that there are a *lot* of foreign investors -- but it seems like those who hold shares in after-tax accounts will be fine and can keep the private equity.

I don't think Musk cares about options holders, who are speculators.

The big issue is retirement accounts. (And other similar "tax break" investment accounts.) It's really normal for people to have all their money in their retirement accounts, and if they're under 65 (in the US, other ages in other countries) they can't get it out of the retirement account. This could be a *very* large percentage of the retail investors.

I hope Musk can find a solution for at least the *majority* of these -- a "Tesla IRA Custodian" who provides IRAs, Roth IRAs, etc, but whose only investment options for IRAs are private Tesla stock + cash, might be the best solution for most of the US population.

Nothing can be done about 401ks where the employee is still working for the company. There seems to be nothing to be done for Canadian retirement plan holders. I don't know about the UK ISA or the various European retirement plans.

The other big issue is the "accredited investor" rules. Most of the non-accredited investors might be forced to cash out, and apparently this US rule applies to foreigners as well. I'm not seeing a great way around this but there may be one I haven't seen.

Age 59 1/2 for IRA withdrawal, right?

 

[mongo]

Age 59 1/2 for IRA withdrawal, right?

Yep. Only thing with a different age threshold is a 401k with your current job if your employment is ended after you are 55.
Otherwise a 10% penalty (roughly cancels the rise from current stock price to 420 (378 effective)). Plus normal income taxes now and on future earnings...
As @neroden mentioned, Ideally, a roll over to another Tesla holding IRA would be available. For some, if the private shares are available in a Roth, that at least helps future taxes (limited contribution though).

 

[Ocelot]

I would be very interested in hearing @neroden ’s thoughts on this. Some people say squeeze is imminent, and yet this post seems to make some sense.

Im sorry, but this 420 price is a serious problem. For one, it caps the stock at 420 from my point of view. The reason is that many funds will have to exit the stock before the deal is completed or wait until the deal is done at sell at 420, they will want to exit at the highest price so every time the stock goes above 420, it makes more sense to sell at that point rather then to wait for the deal to close. This is enough supply to cap the squeeze at just over 420. The deal must happen to force covering, otherwise they just wont cover.

Because the 420 is a cap, the shorts have a known loss that is 10% higher then today's price. They can short at will have almost no downside beyond the 10%. Clearly today's price action shows that shorts could get out at anytime.

Here is the worst part. Because the price is capped at 420, everyone who had long dated calls are crapped out. They are going to 0. As they go to 0, shorts can buy these calls for Squeeze insurance. They have already dropped to 1/4 the value before the stock was halted. What does this mean? If there is a squeeze, shorts can cash in the calls and clean house. If the deal fails to go through, they can also profit from the calls because they will return to normal values. If the stock price collapses because it turns out Elon never had any real funding, then they are going to clean house on the short position. Elon has basically gifted Shorts an out while screwing anyone who was long with calls.

If there is a squeeze, the shorts can sell the calls they bought for pennies on the dollar.

If there is no squeeze and the deal goes through, they can cover and the funds will bail them out.

If there is no deal and the stock stays elevated, then the shorts can add to their short and mop up profits on the calls as they return to normal.

If the SEC finds an issue with the announcements or there is an issue with the funding, shorts will get bailed out by the stock price dropping to 200.

I dont know what Elon was thinking, but this is absolutely terrible for anyone who was long Tesla with options and a complete bailout for shorts smart enough to buy insurance.

 

[bhzmark]

Im sorry, but this 420 price is a serious problem. For one, it caps the stock at 420 from my point of view. The reason is that many funds will have to exit the stock before the deal is completed or wait until the deal is done at sell at 420, they will want to exit at the highest price so every time the stock goes above 420, it makes more sense to sell at that point rather then to wait for the deal to close. This is enough supply to cap the squeeze at just over 420. The deal must happen to force covering, otherwise they just wont cover.

Because the 420 is a cap, the shorts have a known loss that is 10% higher then today's price. They can short at will have almost no downside beyond the 10%. Clearly today's price action shows that shorts could get out at anytime.

Here is the worst part. Because the price is capped at 420, everyone who had long dated calls are crapped out. They are going to 0. As they go to 0, shorts can buy these calls for Squeeze insurance. They have already dropped to 1/4 the value before the stock was halted. What does this mean? If there is a squeeze, shorts can cash in the calls and clean house. If the deal fails to go through, they can also profit from the calls because they will return to normal values. If the stock price collapses because it turns out Elon never had any real funding, then they are going to clean house on the short position. Elon has basically gifted Shorts an out while screwing anyone who was long with calls.

If there is a squeeze, the shorts can sell the calls they bought for pennies on the dollar.

If there is no squeeze and the deal goes through, they can cover and the funds will bail them out.

If there is no deal and the stock stays elevated, then the shorts can add to their short and mop up profits on the calls as they return to normal.

If the SEC finds an issue with the announcements or there is an issue with the funding, shorts will get bailed out by the stock price dropping to 200.

I dont know what Elon was thinking, but this is absolutely terrible for anyone who was long Tesla with options and a complete bailout for shorts smart enough to buy insurance.

Short sellers make VW the world's priciest firm

VW short sellers had a rough time. Margin calls and forced transactions make their own market. Or Another bidder may come. 420 is only a starting point and not a fixed ceiling.

 

[Sancho]

Im sorry, but this 420 price is a serious problem. For one, it caps the stock at 420 from my point of view. The reason is that many funds will have to exit the stock before the deal is completed or wait until the deal is done at sell at 420, they will want to exit at the highest price so every time the stock goes above 420, it makes more sense to sell at that point rather then to wait for the deal to close. This is enough supply to cap the squeeze at just over 420. The deal must happen to force covering, otherwise they just wont cover.
.

Kinda depends on how many shares are held by entities that can't own private shares. Musk and his lawyers are going to try everything they can think of to keep that number low, and well below the 25% held by shorts. If the folks who are exiting know that many shorts are trapped, they are not going to sell at 421.

 

[geometro]

There is no point to short the ETF since it does not influence the SP of tsla and funding. The ETF just provides a vehicle for, say, foreign retirement account.

This is not how ETFs work.
First, there are diversification rules so it can’t be a fund of a single holding.
Second, it needs to track the value of the underlying asset (within reason). Lastly, if it’s reflecting the underlying it does cause creation/redemption activity of the underlying.

 

[shootformoon]

This is not how ETFs work.
First, there are diversification rules so it can’t be a fund of a single holding.
Second, it needs to track the value of the underlying asset (within reason). Lastly, if it’s reflecting the underlying it does cause creation/redemption activity of the underlying.

1. Well, then not ETF, a shell company instead, like the yahoo shell holding BABA.
2. If it is shell, then there is no redemption. It only delists when tsla going public again.
3. tracking value of the underlying asset is a theoretical thing. If you think it is undervalued/overvalued, feel free to hedge.