Short-Term TSLA Price Movements - 2016

[esk8mw]

So, about the form 4. I'm an executive compensation lawyer and work with these filings all the time. Hell, I filed 5 form 4s today at the company I work for. So I'll try and answer some questions. Feel free to ask me any others if I miss anything.

- based on my review of his filings, this is the first time he's ever exercised options since tesla has been public.
- this decision was not taken lightly and it's not a coincidence. You have two business days to file a form 4 after the transaction occurred. Looks like he exercised on a pretty significant down day juuuust a bit outside of two weeks before earnings. Most companies place blackout periods about two weeks prior to earnings through a couple days after earnings. I'm sure serious talks occurred with the the GC to ensure that they were ok to trade prior to the exercise.
- he's pretty clearly sending a message that he thinks this is the bottom. People tend to hold options as long as possible to defer taxation. He has until December, which is an eternity in options world. Most wait until the very last minute unless the cash is needed earlier. He's not averaging out exercises over a period of time. Top execs are very careful about messaging with options. Or any share movements. Doubly true for CEOs and 5x true for a celeb like musk. This is market moving and he knows that.
- he used cash to exercise and hold, a bullish signal. The vast majority of execs withhold shares to cover taxes and exercise price. A little less pronounced here since cash exercise is the conservative approach to exercising this close to earnings re insider trading laws since he's not selling shares into the market.
- he could have exercised a lot more options, as his 2009 grant is fully vested. This would make more sense if he was simply following a strategy of converting his deep in the money options to shares in the normal course prior to expiry. Instead, less than one sixth of the grant. Why? Only thing I can think of is signaling to the markets that there's a bottom. He pays the least amount of taxes now, when the price is depressed. Capital gains tax is deferred until he sells the shares, which is never. If he thinks it's dropping more before December, he'd have been wise to exercise in the future.
- their filings have an error. Box 9 of table 2 should show the aggregate options held by musk, not just the aggregate for the individual grant. They should have learned this after filing the amendment to his form 3 to correct basically the same error in June 2010. Elon, do you need help with your section 16 filings? Call me.

 

[byan1232]

I'm a little concerned that this is happening before the earnings report. Could he be trying to boost investor confidence to mitigate the damage of worse than expected earnings?

 

[esk8mw]

Tesla still has ~1.3B cells to purchase from Panasonic according to the old contract. When will those be exhausted? I think, the GF based pricing kicks in after that. Just my guess; no proof.
Tesla signs deal for 2 BILLION battery cells from Panasonic, enough to quintuple EV production : TreeHugger

Musk buys $5 million SolarCity shares - NASDAQ.com
We should recall, that Musk also bought $5 mil of SCTY at $40 last August and $20 mil of TSLA @$238 (or was it 242?). Those buys didn't turn out to be bullish signs. I have 2 simple questions. May be someone can answer (thanks in advance).
1. Are we sure Elon already paid the $50M in taxes? Isn't the first estimated tax payment for 2016 on April 18th this year?
2. What happens if he exercises the 6.7M shares in 2016? That's like 3.3M TSLA shares in taxes. Does he have enough money from Goldman loan to pay the taxes in cash? Or will he be forced to sell 3.3M TSLA shares this year just to pay the taxes?

Taxes are due to the irs immediately upon exercise, so the 50 million is paid.

he won't exercise all his vested options in 2016, just the remaining 2.8 million that expire in December. If he isn't comfortable fronting the insane outlay required to exercise this many shares, he'll simply do a net exercise (withhold vested shares to cover taxes and exercise price, take delivery of net shares). This is what 95 percent of people do when exercising options, it would not be a bearish signal whatsoever (maybe to some brain dead folks on seekingalpha or something). Side note, 7 year term is unusual. Vast vast majority are 10 years.

 

[Fallenone]

Sorry but you lost me here and would really appreciate if you can tell me more:

- he could have exercised a lot more options, as his 2009 grant is fully vested. This would make more sense if he was simply following a strategy of converting his deep in the money options to shares in the normal course prior to expiry. Instead, less than one sixth of the grant. Why? Only thing I can think of is signaling to the markets that there's a bottom. He pays the least amount of taxes now, when the price is depressed. Capital gains tax is deferred until he sells the shares, which is never. If he thinks it's dropping more before December, he'd have been wise to exercise in the future.

Why exercising 1/6 is more bullish than exercising all? Isn't it more like feeling it's the bottom, but reserving more capital to average down? If he feels this is the absolute bottom, why just 1/6?

 

[esk8mw]

I'm a little concerned that this is happening before the earnings report. Could he be trying to boost investor confidence to mitigate the damage of worse than expected earnings?

That would be a very expensive signal. Stock price is at a 52 week low hence his tax bill is at a 52 week low. Anything can happen, though. I'll be very interested to see how and when he exercises the remaining 2.8 million shares this year. I'm not sure he has he cash available to cover the exercise price and taxes on all that, might have to sell some shares. I'm not sure how liquid he is.

 

[bh1783]

That would be a very expensive signal. Stock price is at a 52 week low hence his tax bill is at a 52 week low. Anything can happen, though. I'll be very interested to see how and when he exercises the remaining 2.8 million shares this year. I'm not sure he has he cash available to cover the exercise price and taxes on all that, might have to sell some shares. I'm not sure how liquid he is.

I don't think he has that kind of cash just laying around. Last time he did it he borrowed money from Goldman using his existing shares as collateral.
Elon Musk Borrows $150 Million To Buy Tesla - Business Insider

 

[esk8mw]

Sorry but you lost me here and would really appreciate if you can tell me more:



Why exercising 1/6 is more bullish than exercising all? Isn't it more like feeling it's the bottom, but reserving more capital to average down? If he feels this is the absolute bottom, why just 1/6?

I doubt he can comfortably afford to front cash for more than 50 million right now. Perhaps that's all Goldman authorized him to use in his margin account, I dunno. But I'm 100% sure he wasn't going to sell shares back into the market to cover the price and taxes, because then the headlines would read MUSK DUMPS SHARES AHEAD OF EARNINGS. Because people don't understand these filings very well or they deliberately misinterpret.

my guess is he will sell to cover on the remaining shares after the stock runs up later in the year, when there's less scrutiny.

 

[Fallenone]

OK, so the reason 1/6 is more about his cash on hand cannot cover too much taxes if exercise more? Makes sense.

I doubt he can comfortably afford to front cash for more than 50 million right now. Perhaps that's all Goldman authorized him to use in his margin account, I dunno. But I'm 100% sure he wasn't going to sell shares back into the market to cover the price and taxes, because then the headlines would read MUSK DUMPS SHARES AHEAD OF EARNINGS. Because people don't understand these filings very well or they deliberately misinterpret.

my guess is he will sell to cover on the remaining shares after the stock runs up later in the year, when there's less scrutiny.

 

[Causalien]

I doubt he can comfortably afford to front cash for more than 50 million right now. Perhaps that's all Goldman authorized him to use in his margin account, I dunno. But I'm 100% sure he wasn't going to sell shares back into the market to cover the price and taxes, because then the headlines would read MUSK DUMPS SHARES AHEAD OF EARNINGS. Because people don't understand these filings very well or they deliberately misinterpret.

my guess is he will sell to cover on the remaining shares after the stock runs up later in the year, when there's less scrutiny.

The Goldman Loan has all been used up.

He has about 80 million left from a Morgan Stanley loan. Assuming 30 million is reserved for living expenses for the next 3 years. 50 Million more can be used for exercise.

 

[Johan]

The Goldman Loan has all been used up.

He has about 80 million left from a Morgan Stanley loan. Assuming 30 million is reserved for living expenses for the next 3 years. 50 Million more can be used for exercise.

That's why needs to sell us some SpaceX shares to free up cash

 

[maoing]

then where is the fund come from to cover $250 million tax for the remaing 2.8 million option exercise which is due by December? I think Elon has to use some stocks to cover the tax, if he can run up the SP, then investors won't complain too much.

The Goldman Loan has all been used up.

He has about 80 million left from a Morgan Stanley loan. Assuming 30 million is reserved for living expenses for the next 3 years. 50 Million more can be used for exercise.

 

[Papafox]

Man you seem really hung up on the shorts :smile: You do realize with over 25% already sold short it is far more likely the "shorts" are the buyers here given we're down about 20% from the 200 dma, covering to take big gains and not being greedy.

Glad you brought up the subject. Here's my 3 cents worth.

* It is hard for us retail longs to fathom, but shares sold short amount to nearly double our current holdings and the numbers increased substantially in the past month. Think about those numbers for a second. If Elon isn't trading his huge bunch of shares, and institutional investors aren't busy trading, short shares outnumber retail shares 2 to 1 and hugely influence each trading day. Keep in mind that every short believes TSLA is going lower, otherwise they would have already covered.

* I believe that investors are basically rational. If they expect TSLA to go higher, they buy, if they expect it to go lower they sell. Normally, we get our cues on the direction of TSLA by digesting pertinent news or by watching the direction of the broader markets. Sometimes people make buying or selling decisions with a component of emotion. If we see the stock rising for unknown reasons, we assume there's a reason for the rise and we're more inclined to buy. Similarly, if the stock price is falling, we assume there's a reason, and we're more inclined to sell.

* Manipulation of stock prices is very much a reality. Many times on this forum we've seen links to the Jim Cramer video, talking about how to manipulate stock prices. Market makers manipulate. Haven't you seen Friday afternoons when the stock stops its climbs and dives and instead levels off and heads to the max-pain number? I've seen this many times. Longs and shorts can manipulate the price by buying or selling at times such as the afternoon when volume is light and their large purchases or sales immediately affect the stock price.

* Picture yourself as a short seller for a moment. This splendid nosedive of the Dow and Nasdaq looks to be over for a while, and you don't really want to see TSLA rebound as much as the other stocks now that the indices are heading upwards. You still believe that TSLA will go lower, perhaps right after the Feb 10 ER, but you have this small problem with all stocks climbing at the moment. What to do? If you truly believe TSLA will go even lower after the ER, you may well be inclined to short sell even more shares. You want to get the most effect at stemming the rise of TSLA, though, so you use psychology. You and a few of your other shorting buddies get together and decide to hold a mass short one morning when TSLA looks like it is going to gallop upwards. Last Friday, Jan 22 arrives. The stock had closed a hair under 200 on Thursday, but it opens higher and reaches 205 quickly Friday morning. Your shorting party begins and soon the stock has fallen to 202.5 while the rest of the market is galloping higher. Day traders see that TSLA is not going to be a good bet for easy money today, so they sell out and go elsewhere, compounding the effect of the morning. You chose a Friday with a max-pain number of 202.5 and you figure the market makers will keep the stock in check come afternoon hours. But you're stunned, because TSLA actually falls lower than 202.5 before it recovers. You realize that you've really freaked out the longs today. TSLA looks sick. There's no reason why it shouldn't be climbing. Maybe TSLA hasn't bottomed out, after all. You make a note of how well this morning shorting routine works and plan to use it again. TSLA closes near the 202.5 max pain number this day.

The cool thing about being a pack of top-dog shorts is that you do your shorting at the peak of each climb of TSLA. You have enough selling power to get the stock heading back down again. Then selling by weak longs and selling by unknown mutt shorts takes over. You get the pleasure of both stopping any TSLA peaks from rising dangerously high and also selling at the best prices of the day. Neat. Normally, you wouldn't have enough selling power to reliably turn around a TSLA rally, but the longs are skittish these days and frighten easily. Right after the broader markets bottom out is when you most need to do your dirty work. Convince the TSLA longs that their stock is not going to rebound like everyone else's. After all, they're already shell-shocked. You might even buy back shares slowly when the price is low to take profits and rearm for the next TSLA rise.

Throughout the week of Jan25-29, there are many instances where the NASDAQ does a downward move during morning hours, and TSLA follows. Other shorts see the drop, and sell emotionally, trying to get some of that easy money and thereby accentuating the drops. Some longs are so rattled they can't stand the drops any more and sell on the drop. After all, TSLA is sick, right? The net result is a big plunge in the morning and an effort for the rest of the day to recover some of that loss. By Thursday, Jan. 28, Longs manage to pull TSLA up from its morning dip and into the green by closing. The price has become just too much of a bargain. So, you and your shorting buddies make another plan for Friday, Jan. 29. The Max-pain number is 197.5 and the stock closed the previous afternoon at 189.7. This is a scary day for a short because Europe and Asia are both up big as trading begins. You know that if TSLA goes into the afternoon above 195 the market makers will likely help it reach that 197.5. You have to keep it down. TSLA comes out of the blocks like a sprinter and leaps to over 193 quickly. You and your buddies start selling. You can't bring it negative, there's too much buying pressure, but you've brought it way down. It makes another jump up and you catch it before it hits 194 and bring it back down. You can't afford to let TSLA run up too steep for too long because then other shorts will think that a short squeeze is underway and everything goes to hell fast then. Instead, people are scratching their heads and wondering why TSLA is so sick. There's no substantial news, both the NASDAQ and DOW are climbing steadily and TSLA appears sick. It actually dips into the red before recovering. As closing nears and volume abates, the market makers see an opportunity to bring the stock closer to max-pain. Their buying gets the stock on a trajectory upwards, towards 192.5, but you and your buddies don't like this type of a close, and you sell in an effort to bring the stock below the psychological number 190 (stock closed the week in the 180s) or even better you try to get it down to below 189.7 and end the week on a down day. Market-makers plus longs prevail, however, and the stock closes at 191.2. It will rise on its own to 191.5 after hours. For shorts, it has been a battle well fought. The NASDAQ and DOW both gained nearly 2.5% but TSLA was up only about 0.8%. Mission accomplished.

 

[Causalien]

then where is the fund come from to cover $250 million tax for the remaing 2.8 million option exercise which is due by December? I think Elon has to use some stocks to cover the tax, if he can run up the SP, then investors won't complain too much.

My guess is 200 mil loan from JPM this time. But I recommend borrowing from Sergey instead so JPM don't turn around and immediately short the stock. TSLA has enough wallstreet influence as it is. Time to get back to silicon valley roots.

 

[Zhelko Dimic]

Glad you brought up the subject. Here's my 3 cents worth.

* It is hard for us retail longs to fathom, but shares sold short amount to nearly double our current holdings and the numbers increased substantially in the past month. Think about those numbers for a second. If Elon isn't trading his huge bunch of shares, and institutional investors aren't busy trading, short shares outnumber retail shares 2 to 1 and hugely influence each trading day. Keep in mind that every short believes TSLA is going lower, otherwise they would have already covered.

* I believe that investors are basically rational. If they expect TSLA to go higher, they buy, if they expect it to go lower they sell. Normally, we get our cues on the direction of TSLA by digesting pertinent news or by watching the direction of the broader markets. Sometimes people make buying or selling decisions with a component of emotion. If we see the stock rising for unknown reasons, we assume there's a reason for the rise and we're more inclined to buy. Similarly, if the stock price is falling, we assume there's a reason, and we're more inclined to sell.

* Manipulation of stock prices is very much a reality. Many times on this forum we've seen links to the Jim Cramer video, talking about how to manipulate stock prices. Market makers manipulate. Haven't you seen Friday afternoons when the stock stops its climbs and dives and instead levels off and heads to the max-pain number? I've seen this many times. Longs and shorts can manipulate the price by buying or selling at times such as the afternoon when volume is light and their large purchases or sales immediately affect the stock price.

* Picture yourself as a short seller for a moment. This splendid nosedive of the Dow and Nasdaq looks to be over for a while, and you don't really want to see TSLA rebound as much as the other stocks now that the indices are heading upwards. You still believe that TSLA will go lower, perhaps right after the Feb 10 ER, but you have this small problem with all stocks climbing at the moment. What to do? If you truly believe TSLA will go even lower after the ER, you may well be inclined to short sell even more shares. You want to get the most effect at stemming the rise of TSLA, though, so you use psychology. You and a few of your other shorting buddies get together and decide to hold a mass short one morning when TSLA looks like it is going to gallop upwards. Last Friday, Jan 22 arrives. The stock had closed a hair under 200 on Thursday, but it opens higher and reaches 205 quickly Friday morning. Your shorting party begins and soon the stock has fallen to 202.5 while the rest of the market is galloping higher. Day traders see that TSLA is not going to be a good bet for easy money today, so they sell out and go elsewhere, compounding the effect of the morning. You chose a Friday with a max-pain number of 202.5 and you figure the market makers will keep the stock in check come afternoon hours. But you're stunned, because TSLA actually falls lower than 202.5 before it recovers. You realize that you've really freaked out the longs today. TSLA looks sick. There's no reason why it shouldn't be climbing. Maybe TSLA hasn't bottomed out, after all. You make a note of how well this morning shorting routine works and plan to use it again. TSLA closes near the 202.5 max pain number this day.

The cool thing about being a pack of top-dog shorts is that you do your shorting at the peak of each climb of TSLA. You have enough selling power to get the stock heading back down again. Then selling by weak longs and selling by unknown mutt shorts takes over. You get the pleasure of both stopping any TSLA peaks from rising dangerously high and also selling at the best prices of the day. Neat. Normally, you wouldn't have enough selling power to reliably turn around a TSLA rally, but the longs are skittish these days and frighten easily. Right after the broader markets bottom out is when you most need to do your dirty work. Convince the TSLA longs that their stock is not going to rebound like everyone else's. After all, they're already shell-shocked. You might even buy back shares slowly when the price is low to take profits and rearm for the next TSLA rise.

Throughout the week of Jan25-29, there are many instances where the NASDAQ does a downward move during morning hours, and TSLA follows. Other shorts see the drop, and sell emotionally, trying to get some of that easy money and thereby accentuating the drops. Some longs are so rattled they can't stand the drops any more and sell on the drop. After all, TSLA is sick, right? The net result is a big plunge in the morning and an effort for the rest of the day to recover some of that loss. By Thursday, Jan. 28, Longs manage to pull TSLA up from its morning dip and into the green by closing. The price has become just too much of a bargain. So, you and your shorting buddies make another plan for Friday, Jan. 29. The Max-pain number is 197.5 and the stock closed the previous afternoon at 189.7. This is a scary day for a short because Europe and Asia are both up big as trading begins. You know that if TSLA goes into the afternoon above 195 the market makers will likely help it reach that 197.5. You have to keep it down. TSLA comes out of the blocks like a sprinter and leaps to over 193 quickly. You and your buddies start selling. You can't bring it negative, there's too much buying pressure, but you've brought it way down. It makes another jump up and you catch it before it hits 194 and bring it back down. You can't afford to let TSLA run up too steep for too long because then other shorts will think that a short squeeze is underway and everything goes to hell fast then. Instead, people are scratching their heads and wondering why TSLA is so sick. There's no substantial news, both the NASDAQ and DOW are climbing steadily and TSLA appears sick. It actually dips into the red before recovering. As closing nears and volume abates, the market makers see an opportunity to bring the stock closer to max-pain. Their buying gets the stock on a trajectory upwards, towards 192.5, but you and your buddies don't like this type of a close, and you sell in an effort to bring the stock below the psychological number 190 (stock closed the week in the 180s) or even better you try to get it down to below 189.7 and end the week on a down day. Market-makers plus longs prevail, however, and the stock closes at 191.2. It will rise on its own to 191.5 after hours. For shorts, it has been a battle well fought. The NASDAQ and DOW both gained nearly 2.5% but TSLA was up only about 0.8%. Mission accomplished.

Or someone really knows something, like it was case at the end of September.

I like your theory better though, hope it's the correct one

 

[Oil4AsphaultOnly]

I don't think he has that kind of cash just laying around. Last time he did it he borrowed money from Goldman using his existing shares as collateral.
Elon Musk Borrows $150 Million To Buy Tesla - Business Insider

Since he borrowed money using his existing shares as collateral, does it need to be reported if he defaults on the personal loan? Wouldn't the shares get transferred to Goldman Sachs in such a scenario? And would it have to be reported to the SEC in any kind of filing? Or is it exempted since it wasn't a stock sale, more of a contractual obligation?

 

[Matias]

How is it possible for insider to buy stocks this close to ER?

Trading Window Periods. Investment by the Company’s directors, officers or employees in Company securities is encouraged, so long as such persons do not purchase or sell such securities in violation of this Insider Trading Policy. In furtherance of the goals underlying the Company’s Insider Trading Policy, the Company’s directors, officers (those required to make filings under Section 16 of the Securities Exchange Act of 1934) and all employees at the Vice President level and above, as well as all employees in the accounting group are prohibited from buying or selling Company securities at all times, except during the period extending from the third (3[SUP]rd[/SUP]) through the thirteenth (13th) business day following the release of the Company's earnings for the immediately preceding fiscal period to the public (the "Trading Window Period").

Source
http://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm

 

[bh1783]

Since he borrowed money using his existing shares as collateral, does it need to be reported if he defaults on the personal loan? Wouldn't the shares get transferred to Goldman Sachs in such a scenario? And would it have to be reported to the SEC in any kind of filing? Or is it exempted since it wasn't a stock sale, more of a contractual obligation?

his net worth is $13 billion. $250 million in loans is less than 2 percent of his net worth.

 

[Zhelko Dimic]

How is it possible for insider to buy stocks this close to ER?

Trading Window Periods. Investment by the Company’s directors, officers or employees in Company securities is encouraged, so long as such persons do not purchase or sell such securities in violation of this Insider Trading Policy. In furtherance of the goals underlying the Company’s Insider Trading Policy, the Company’s directors, officers (those required to make filings under Section 16 of the Securities Exchange Act of 1934) and all employees at the Vice President level and above, as well as all employees in the accounting group are prohibited from buying or selling Company securities at all times, except during the period extending from the third (3[SUP]rd[/SUP]) through the thirteenth (13th) business day following the release of the Company's earnings for the immediately preceding fiscal period to the public (the "Trading Window Period").

Source
http://www.sec.gov/Archives/edgar/data/25743/000138713113000737/ex14_02.htm

Selling is mostly problem, not buying. He has no fiduciary duty of care to shorts

 

[Matias]

Selling is mostly problem, not buying. He has no fiduciary duty of care to shorts

According to rules it doesn't make a difference whether you sell or buy. If you are a top level insider, you have to do it in certain window.

"so long as such persons do not purchase or sell such securities in violation of this Insider Trading Policy"

I'm sure Elon and his lawyers have taken this into account. I just wonder my self, how is this possible.

 

[MitchJi]

Posts from the event start here:
- Page 12

Spoke to a couple of the production engineers over by the MX Skateboard they had on display. I asked explicitly about whether the cars come off the line in VIN order.

Answer:
For Model S, yes, they come in exactly VIN order. For Model X it's *very close* to VIN order. Every once in a while an adjustment needs to be made in the process and a MX will come off the line temporarily so another few MX will get ahead of it on the line and therefore they don't come off the line in exact VIN order, but not wildly off either.

What that means for me, since my VIN is 200 less than the VIN's on display is that my car is definitely "done" as sales indicated, so I'm likely just waiting for Sigs to get theirs soon.

He was very hopeful that the MX ramp is going to crank up significantly soon.

Part of the line was visible and he said the mix of cars on the line there was representative of the current Model S and Model X build rates. Having watched the line fairly carefully every time it moved, I'd say that the ratio is 10-15 S for every 1 X right now.

Another interesting tidbit: As of Jan 4, the line runs 4 days a week with employees working 12 hour shifts, the other 3 days the line has maintenance done, adjustments, etc. Before that folks were working 5 days, 8 hour shifts. They voted to have a 3 day weekend and work longer hours.

If they are making 200-250 MS per week, that's only 13-25 MX per week ?

There were 4 X's there. I tried to use a bit of social engineering with different reps on the floor but consistent answer that they didn't know anything about production volume.

One who I had met has been with Tesla since 2012 and was part of the S ramp. He said that after the leaks during S ramp they have become very tight lipped with employees downstream customer facing (DS, SC, Sales).

This means if you hear anything from the preceding folks that is not publicly available information or what their computer screen tells them it is probably their own WAG

I found that the reps near the cars weren't very helpful. But the guys over by the skateboard were VERY knowledgeable and you could tell when a question was one they knew the answer to but could not share it and when they had a vague enough answer they could give. (i.e. the "line you see is representative of the mix").

We were surprised that they seemed to be doing their own die-casting of the gearbox and motor housings. Apparently the supplier for those (Both S and X) was going under, Tesla bought them and brought all their equipment in-house, but Fremont wasn't going to give them the permit to be doing that kind of work at the factory. Elon said "OK. Well, we're starting die-cast runs on Thursday at this time, here's where I'll be if you need to arrest me. And then we can talk about the 4000 jobs that will be idled because we don't have the parts we need." They got the permits they needed temporarily while zoning gets changed