So, let's continue exploring this
rabbit warren. Way back during the August 2020 5:1 split, there was an interesting coincidence in timing between the Split Announcement and the NASDAQ Short Interest data release.
Specifically, SI data for July 31, 2020 was released just before Tesla announced their 5:1 split during the After-hrs session on Aug 11, 2020: (here was the TSLA SP reaction)
View attachment 735229
At that time, I used the SI volume to estimate the number of phantom shares created via naked short selling (assumed a 1:1 short/naked as a 1st approximation). This allowed me to use a simple supply and demand microeconomics model to predict a 90% increase in the SP due to the forced naked short covering. Turns out that was very close.
In the event, TSLA SP rose exactly 96% from $1374 to $2,700 pre-split (or $540 post-split) peaking in the Pre-market on Tue, Sep 01 just before Tesla's 7:00 a.m. SEC filing for their $5B Equity Offering: (here's the Pre-market reaction from Sep 01, 2020)
View attachment 735230
Recall that during this time, many Retail Brokers were *
unable* to deliver the Dividend Shares to their Beneficial Owners (read: Retail customers of the Broker), and MANY excuses were offered as to why they had not received their shares from the Clearing House. Yeah, they were
unable because they weren't ENTITLED to any more shares because they were NAKED SHORT. All this occurred as I
predicted in advance, and posted here in this thread around Aug 14, 2020.
Let's also take note of this further coincidence: the $5B Equity Offering filed on Sep 01, 2020 was equal to the estimated value of shares that naked shorts would be forced to purchase as a minimum (also predicted by the Aug 11 SI data). IMO, Tesla gave an escape door for MM/hedge funds, who gladly coughed up $5B in about 24 hrs to escape their predicament (caught naked short).
BTW, that $5B paid for Giga Texas in full, with a tidy sum left over for future debt repayments (thanks shortie, wouldn't wanna be ya)
Note also that this did not END the practice of naked shorting TSLA, it was just the MINIMUM number of shares required to cover by abusive naked short sellers (mainly MMs with the Options exemption, but TSLA has about 28 different MMs).
So now, fast-forwarding, let's take note of these Dates for Nov/Dec 2021, extracted from the
NASDAQ Short Interest Publication Schedule:
November | Settlement Date | Due Date- 6 p.m. | Dissemination Date
after 4 p.m., ET |
| 11/30/2021 | 12/2/2021 | 12/9/2021 |
OH GEEZ. There's that DATE again: 12/9
So this means that any naked shortz not covered as of Nov 30, 2021 WILL be vulnerable on Dec 09, 2021 if not covered via purchasing a real TSLA share (one which is registered with the National Clearing House, not just an entry in the MMs internal ledger).
But this time around, Elon is providing both an escape hatch (his share sales), and fair warning (all those twitter hints) to any MM/hedgies who DID NOT LEARN from the beating they took in Aug/Sep 2020: DUCK AND COVER, or SUFFER. We can attribute some of this week's SP runup to that "learning process" working on shortzes.
We saw in Jan 2021 with the Gamestop $GME trading disaster that highly exposed Retail Brokers are VULNERABLE to default/bankrupcy (mainly Robin Hood and Melvin Capital, but also Interactive Brokers to name a few).
When there are more legal obligations to purchase shares than the total number of shares that exist ($GME short interest was 134% of their total stock on about Jan 26, 2021), its a major problem for the Market. This event nearly caused the collapse of several large players, which desparately halted BUYING ONLY for GME, but
retail suckers bagholders traders suckers were allowed to SELL as the SP collapsed. Also, Melvin Capital needed a $2.8B bailout from Citadel (which implies their own risk was even higher, if that was their best solution). It happened to $GME.
Now fast-forward to Dec 2021:
- Tesla does NOT need any Capital; so no rescue forthcoming via an Equity Offering
- S&P 500 Index and Benchmarked Funds combined hold ~$300B of TSLA shares
- large funds are direct holders of their shares, which can not be faked on a ledger
- on the split comes, big players will DEMAND all their rightfully owned dividend shares
- its possible a share dividend may trigger a recall by Funds which have loaned shares
- competition for the remaining float will be intense as legal shortzes scramble to cover
Any remaning
naked shortzes will also have to compete for that shrinking float, as HODL'rs won't sell and MOMO traders jump in with both boots. And then it's the ...
SQUEEZE.
This is my prediction going forward:
- Thu, Dec 9, 2021 Tesla announces share dividend (split ratio TBD)
- December TSLA SP run-up continues in an epic "Santa Claus Rally"
- Thu, Dec 23, 2021 new shares Distribution Date (D-Day, Merry Xmas!)
- Mon, Dec 27, 2021 TSLA begins trading with these new Dividend shares
- certain Retail Brokers are AGAIN unable to deliver those shares
- excuses and cries of 'foul' flood the Media (who's Xmas is spoiled)
- the short squeeze begins in earnest with exponential runup
- Tesla DOES NOT offer an Equity rescue (humming Carols instead)
- Jan 2022:
- some Financial instititutions collapse (looking at JPMorgan)
- Congress gets involved (so nothing happens)
- stalemate is not an option
So what does the end game look like? Well,
SEC Regulation SHO, Rule 201 "the options market maker's exemption to the prohibition against naked shorting" a.k.a. the "
Madoff Rule" has to be the target of this gambit. If Rule 201 is not fixed in a meaningful way, Tesla can repeat this forever going forward as Elon sells 10% year after year.
Untenable... Must fix... Rasputin... China syndrome... Manhatten Project.
Just one last point to make for any doubters who are still reading this: before
Bernie Madoff died in prison for his multi-billion dollar fraud
ponzi scheme, before Bernie drafted the "
Madoff Rule" which is Regulation SHO, Rule 201,
Bernie Madoff was the President of NASDAQ.
This can happen. Worse things have happened in the past. We just don't think much about it.
Word.