Short-Term TSLA Price Movements - 2016

[racer26]

Also, greater interior volume on smaller exterior footprint necessarily equals significantly less crumple zones equals less safe.

 

[Calvin.K]

Tesla pushing higher on low volume wondering if it will break $200 resistance

 

[schonelucht]

Adding interior volume...

Which is why I wrote interior utility, not interior volume.

 

[SBenson]

That's pretty much where I've been coming from.

I should point out that it's bizarrely common for markets to misprice stocks leading up to a merger. Typically the discount for merger failure possibility is too high. It's possible for some people to make *consistent money* on merger arbitrage -- one of the short list of consistent beat-the-market strategies -- because of this. There are a number of books which discuss this. It's been documented as a strategy as far back as Benjamin Graham's 1949 edition of _The Intelligent Investor_ and as recently as _Merger Arbitrage 2nd Edition_ (2016).

Obviously there are no guarantees. Maybe this is one of the deals which won't go through; merger arb specialists make many such trades each year and if one fails, they make the money back on the others. My point is that it's *normal* for the smaller company's stock to trade at an unreasonably large discount even *if* the merger is highly likely to go through. It doesn't necessarily indicate that the big traders know anything we don't (it could indicate that but it doesn't necessarily indicate that).

I'm not entirely sure why merger arbitrage inefficiences persist, but they do.

@neroden always appreciate your well thought out posts.

Just to kick the argument around lets begin with this. What do you think price of SCTY will be, if merger fails?

 

[brian45011]

... does anyone know if lawsuits could realistically delay the SCTY deal?

No possibility of even a TRO. No irreparable harm, after-the-fact monetary damages provide a sufficient remedy.

 

[racer26]

As of right now, the arbitrage gap is wider than it was at market open. TSLA is climbing faster than SCTY.

 

[tander]

Simple. Unlike normal arbitrage opportunities (such as trading USD for EUR, EUR for GBP, GBP back to USD if the prices are right), its not a sure thing.

Since the uncertainty in a merger is difficult to gauge unless you have insider information, the result is a difficult to predict thing. Difficult to predict equals hard to assess risk of failure of the merger, means an arbitrage gap that is bigger than it probably should be. Right now, TSLA/SCTY are trading as though the merger ratio was 0.085, not the 0.11 it is. A reasonable metric of the risk profile would probably be more like 0.10.

Humans are really bad at assessing and mitigating risk in a sane and sensible manner. This is why people are afraid to go on airplanes, but not to drive to the airport. Statistically, airplane is a safer mode of travel than cars by several orders of magnitude, so the money we spent on beefing up airport security post-9/11 would have TOTALLY been better spent on making our roads safer. More lives would be saved. We should do things to mitigate risk to human life based on a function of dollars spent to lives saved. Spending millions of dollars to make nuclear plants less likely to leak radiation is inefficient, when the largest source of ionizing radiation that anyone gets is the radon seeping into your basement. The test to check for radon in your basement costs about $2, but nobody uses it.

It blows me away so much FUD has been cast on this merger. You've got two companies in complimentary industries basically started in the same place by the same person and run by the same person and people make it sound like it's really uncertain. You don't need any inside information or time spent short of skimming both their wikipedia pages to know that. Of all the mergers that happen this has to be near the top in terms of how likely it is to happen. But then again "two companies started and run by same guy are planning to merge" isn't an attention grabbing headline.

 

[vgrinshpun]

INSANELY low volume today! I do not remember ever seeing only 260K shares traded in the first half hour of trading. I think we are seeing a waiting game of biblical proportions...

Still very low volume, but picking up a bit, and we are about to break through $200. This just does not feel "normal", something is cooking. I am wondering if both volume and the climb will accelerate if TSLA breaks through $200.

 

[racer26]

Can we keep this constant slope for the rest of the day? That would put us back just under 210 by close.

 

[NOLA_Mike]

No shortable shares available at IB as of now, borrowing fee rate if there were is 13.73%.

I'm most watching to see if $TSLA drags $SCTY up with it (kicking and screaming or not).

Mike

 

[phigment]

Would there be no share recall for SCTY?

 

[McMuggets]

It blows me away so much FUD has been cast on this merger. You've got two companies in complimentary industries basically started in the same place by the same person and run by the same person and people make it sound like it's really uncertain. You don't need any inside information or time spent short of skimming both their wikipedia pages to know that. Of all the mergers that happen this has to be near the top in terms of how likely it is to happen. But then again "two companies started and run by same guy are planning to merge" isn't an attention grabbing headline.

Doesn't anyone find it strange that shorts are spreading FUD and trying to stop the merger? But their argument is that "the merger will destroy and bankrupt the companies". Ok... but if you are SHORT TSLA and SCTY, why in the world would you try to stop the merger and scare investors into voting against it? I would rather keep it to myself and hope the merger goes through so I can see the bankruptcy and cash in on my short position.

Long and short of it... Jim Chanos isn't trying to be benevolent by doing a public service announcement. He's trying to kill the merger because it will actually be good for Tesla and hence disastrous for Chanos' short position.

 

[Crowded Mind]

Just noticed that Jan '19 options are out for SCTY. Anyone considering?

 

[Quesder]

Doesn't anyone find it strange that shorts are spreading FUD and trying to stop the merger? But their argument is that "the merger will destroy and bankrupt the companies". Ok... but if you are SHORT TSLA and SCTY, why in the world would you try to stop the merger and scare investors into voting against it? I would rather keep it to myself and hope the merger goes through so I can see the bankruptcy and cash in on my short position.

Long and short of it... Jim Chanos isn't trying to be benevolent by doing a public service announcement. He's trying to kill the merger because it will actually be good for Tesla and hence disastrous for Chanos' short position.

Well, maybe they only short SCTY.

 

[vgrinshpun]

Can we keep this constant slope for the rest of the day? That would put us back just under 210 by close.

This will also "validate" my weekly lottery tickets - $207.5 calls. I doubled down and after buying 10 contracts yesterday, spent another $80 to add 10 more.

 

[schonelucht]

Would there be no share recall for SCTY?

Elon will vote with his SCTY shares. Maybe there are large players who feel that puts enough votes in the yes camp as not to do a total recall of their SCTY holdings?

 

[McMuggets]

Well, maybe they only short SCTY.

Except that Chanos said he is short both TSLA and SCTY.

 

[NOLA_Mike]

Except that Chanos said he is short both TSLA and SCTY.

He also said, toward the end of the segment, that he doesn't care if the deal goes through or not, if it goes through he will "just be short more TSLA".

 

[Papafox]

Cd matters because aerodynamic resistance increases rapidly with higher velocity.

What may be 238 miles at 40 mph might become 100 miles at 75 mph.

Cd is indeed important. Try driving into a 35 mph wind with a car that maxes out at 95 mph. It's aerodynamic drag, not the rolling resistance, that limits the Bolt at such times. You might have difficulty maintaining normal highway speed in such an event. Since aerodynamic drag doubles with every 41% increase in speed, the limitations can be quite significant when driving into a strong wind or trying to go fast.

 

[Jayjs20]

Has there been any recent word on EM's opinion/confidence level that the merger will go through? I'm getting more and more tempted to jump in.