Short-Term TSLA Price Movements - 2016

[FredTMC]

Man we can't catch a break today.

Nope. Amazing strength though given macros...

 

[Fallenone]

Makes no sense. If the deal goes through, which is the most likely outcome, both SCTY and TSLA will jump, but SCTY will jump higher than TSLA to close the arbitrage gap. Your trading strategy is almost guaranteed to lose money.

No you won't lose money in this situation. Say you long +100 TSLA and short -909 SCTY. When the deal goes through, the -909 SCTY becomes -100 TSLA, and negated by the long +100 TSLA completely. It's just like selling options. You may have a huge unrealized loss the day before SCTY is taken off the market, but when it settles, you lose nothing (except for the interest fee due to shorting SCTY).

Edit: well there is the risk that the exchange ratio increases, say, 9.09 SCTY for 2 TSLA. Then at the end, the -909 SCTY becomes -200 TSLA and this trade will result in a loss.

Edit 2: I used the wrong numbers for the exchange ratios, corrected now.

 

[nienco2]

Can someone post shares currently available to short with brokers?

Needs an update from this morning... Thanks in advance!

Not exactly to your question but shares held short 6/30 were 31 mil and as of 8/15 were 26.4 mil. So during period when actual shares short dropped 4.6 million it became more difficult to borrow. can we then infer that big investors recalling shares, that is reducing supply, made shares more HTB even though demand for shares to short (demand) was falling. Did they recall so they could vote? or to sell?

disclosure I'm short and welcome civil discussion since there seems to be quite alot of knowledgeable people following the short interest on this site

 

[CALGARYARSENAL]

Deteriorating market conditions may be an excuse to walk away from Solar City.

 

[racer26]

No you won't lose money in this situation. Say you long +1 TSLA and short -11 SCTY. When the deal goes through, the -11 SCTY becomes -1 TSLA, and negated by the long +1 TSLA completely. It's just like selling options. You may have a huge unrealized loss the day before SCTY is taken off the market, but when it settles, you lose nothing (except for the interest fee due to shorting SCTY).

Edit: well there is the risk that the exchange ratio increases, say, 11 SCTY for 2 TSLA. Then at the end, the -11 SCTY becomes -2 TSLA and this trade will result in a loss.

You're also out the arbitrage gap, too, no?

 

[esk8mw]

Can someone post shares currently available to short with brokers?

Needs an update from this morning... Thanks in advance!

27k @ 10.8% for IB

 

[moe.salih]

Edit: well there is the risk that the exchange ratio increases, say, 11 SCTY for 2 TSLA. Then at the end, the -11 SCTY becomes -2 TSLA and this trade will result in a loss.

What are odds of the exchange ratio changing? Is that possible after the two parties reach an agreement?

 

[MitchJi]

Seriously, the #1 story today on this Short-term thread is SCTY related "share recall" for Voting.

Does anyone see evidence of shares being recalled by brokers?

So far, I've got nothing...

It's the only explanation I've got for TSLA strength today.

I bet you'll be able to hear the squealing from seeking bs if a significant share recall starts to happen.

If it doesn't I believe that there is an excellent chance of a lot of upward pressure, possibly even a squeeze happening when the Q3 numbers are released and after the ER-CC.

I'll wait to post my theory until it's clear that the forced recall isn't happening (if it doesn't). I hope It does.

 

[Fallenone]

What are odds of the exchange ratio changing? Is that possible after the two parties reach an agreement?

Very small. And near 0 for it to change favorably towards SCTY, which is the losing scenario in this trade.

 

[neroden]

No you won't lose money in this situation. Say you long +100 TSLA and short -909 SCTY. When the deal goes through, the -909 SCTY becomes -100 TSLA, and negated by the long +100 TSLA completely. It's just like selling options. You may have a huge unrealized loss the day before SCTY is taken off the market, but when it settles, you lose nothing (except for the interest fee due to shorting SCTY).

Edit: well there is the risk that the exchange ratio increases, say, 9.09 SCTY for 2 TSLA. Then at the end, the -909 SCTY becomes -200 TSLA and this trade will result in a loss.

Edit 2: I used the wrong numbers for the exchange ratios, corrected now.

No, you did the math wrong. Suppose you're long 100 TSLA @ $195, costing you $19500, and short 909 SCTY at $16, gaining you $14544. If the deal goes through with the current exchange rate, the long TSLA and short SCTY cancel out and you have a nice guaranteed loss of $5000.

Seriously, the arbitrage is the other way: short TSLA, long SCTY. The only reason to short SCTY (across the merger date, obviously you could always do silly ultra-short-term stuff) is if you think the deal will not go through at the current exchange rate.

 

[Fallenone]

No, you did the math wrong. Suppose you're long 100 TSLA @ $195, costing you $19500, and short 909 SCTY at $16, gaining you $14544. If the deal goes through with the current exchange rate, the long TSLA and short SCTY cancel out and you have a nice guaranteed loss of $5000.

Seriously, the arbitrage is the other way: short TSLA, long SCTY. The only reason to short SCTY (across the merger date, obviously you could always do silly ultra-short-term stuff) is if you think the deal will not go through at the current exchange rate.

sugar, I feel so dumb.

 

[larmor]

Extension of laws to fight climate change in CA, shhh don't tell the market that TM is really TE....
California Gov. Jerry Brown Signs New Climate Change Laws

 

[neroden]

Maybe I'm wrong, but this all starts to smell like an ambush on shorts.
- Stock suddenly easier to borrow from about time when institutions may have heard of record date? What if one big investor decided to let shares be lent to allow shorts to pile on?
- Short timeline to recall shares.
- Big push for Q3.
These few facts would each add gasoline on the fire, and as @Papafox said, momentum begets momentum. There could be some knife sharpening going on right now.

And it's more or less legal for proprietary trading desks to do stuff like this. Though it's kind of scummy. Suppose one of the Big Banks decided to offer a huge block of SCTY shares for lending; waited as the shorts piled in; and is buying up shares at the bottom, in the full knowledge that they can recall their shares and trigger a runup, while having plausible deniability if anyone accused them of market manipulation ("oh, it was just the Q3 results making the stock go up, and I needed to withdraw the shares for voting, honest").

This theory feels unlikely to me, but I see what Dimic says, it *smells* like it.

 

[racer26]

No, you did the math wrong. Suppose you're long 100 TSLA @ $195, costing you $19500, and short 909 SCTY at $16, gaining you $14544. If the deal goes through with the current exchange rate, the long TSLA and short SCTY cancel out and you have a nice guaranteed loss of $5000.

Seriously, the arbitrage is the other way: short TSLA, long SCTY. The only reason to short SCTY (across the merger date, obviously you could always do silly ultra-short-term stuff) is if you think the deal will not go through at the current exchange rate.

In other words, yes, I was right.

You're out the arbitrage gap + the short interest if you long +100 TSLA and short -909 SCTY, and you have no upside in the event the merger succeeds at the current rate, because -909 SCTY becomes -100TSLA, completely nullifying your +100TSLA.

Even the other way though, there's more risk than just holding TSLA or SCTY or both Long I think.

 

[neroden]

With arbitrage now at 25%, what is a realistic reason this deal doesn't go through?

Here's the only scenario I can think of where the deal doesn't go through: a manipulator borrows large numbers of shares for voting purposes. We wouldn't know about this until the SEC filing.

There's an inherent bias towards any deal supported by management, because those who oppose the deal tend to sell their shares and those who support the deal tend to buy shares. On top of that, one of the largest institutional fund managers holding TSLA and SCTY is totally in favor of the deal, and all the other big holders seem to be at least cautiously in favor. It seems to me like only a concerted and deliberate scheme to sink the deal would be capable of doing so.

 

[neroden]

Sorry if this was posted by someone else already, but I didn't see it, so putting it here. This is the solar city filing found on: SolarCity - Other

"In response to questions from certain Tesla investors, and subject to the normal SEC review and comment process of our Form S-4 registration statement, we currently expect that the record date for the determination of Tesla stockholders entitled to receive notice of, and to vote at, the Tesla special stockholders meeting in connection with the SolarCity acquisition will be sometime during the week of September 19, 2016."

Huge news, thank you. This is a greased-lightning merger schedule. If you want to vote your shares, *recall them NOW*. I'm not lending mine out again until after the record dates are passed.

Your brokerage has some time to return shares once you ask for them to be returned, and when they're "returned", the clearinghouse has 3 business days to actually return them to you... and longer in some cases. So if you want to vote, you should pull your shares out of the SFLP programs, now.

If you're using margin and you want to vote, tell your broker you want to move your TSLA or SCTY onto the cash side of your account NOW. If there's enough other collateral in the account, they're supposed to honor such a request; if they're behaving oddly about it, you can demand that the shares be registered in your name, which they have to honor. (Provided you have enough other collateral.)

 

[dmckinstry]

Extension of laws to fight climate change in CA, shhh don't tell the market that TM is really TE....
California Gov. Jerry Brown Signs New Climate Change Laws

"But not everyone agrees. The two new laws signed by Brown faced fierce opposition from the state's business community, including the oil industry, as well as from Republicans."
Surprise surprise.

 

[neroden]

* Media effects: Have you noticed how the news cycle is almost all negative articles when TSLA is descending (and mostly positive articles when TSLA is climbing)? Today's online media is focused upon clicks, and when there's fear, the fearful articles grab attention and when there's optimism, the positive articles grab the most clicks.

Oh, it's worse than that. There are algo trader bots which attempt to trade on the "news". When a five-year-old article somehow slips onto its news feed, these algo trader bots cause "flash crashes" -- this is the cause of two "flash crashes" in the last decade, at least.

 

[NOLA_Mike]

Forbes...

Forbes on Twitter

 

[neroden]

Guys I believe the vast majority of the recall already happened over the last couple of weeks. To me that is the only explanation for how hard the shares were to borrow while total shares short was falling. The recall is mostly done.

I think this is likely to be correct. It would also explain why TSLA and SCTY both held up so well for the last couple of months despite relentless bad news. I think the recall finally stopped and the selling pressure started dropping the price. If not for the recall, we probably would have been down at these price levels back in early August, I figure.

I would expect most institutions which want to make sure they can vote to have recalled early. There might be a further recall by more "high-flying" institutions" who are certain that they can recall on short notice and want to grab extra cash from lending, or there might not.