Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[JRD1]

Real shares only need to exist when someone sells their shares or asks for a certificate. Until then it's all numbers in a database.
A person whose shares are lent out has no certificates, they only have a number in their trading app that says how many shares they own/ control. The broker lends shares from A to B and B sells to C. Either A or C can sell their 'shares' at any time, making them actual ones for a moment and the broker only hits up B for them if the pool of shares to lend dries up. If C also has a margin account, they might not even have 'real' shares for long.
Just like when you deposit cash in a bank, they do not have your serial numbered bills (or even the total amount on hand of all deposits). However, people can withdraw 'their'; money at any time.

Post event, each lent share becomes 5 lent shares. Each person's account showes 5x more shares, and the brokerage has 5x more real shares and 5x more lent shares to track. Nothing fundamentally changes.

Agree - and that database is also double entry balanced accounting so debits and credits have to balance. Which is how the 'additional' shares get added.

Another way to think of this:
If today the US Treasury declared that every current US dollar splits into 5 'new' dollars at 5pm eastern, would everyone that has a loan have to cover their loan and re-borrow 'new' dollars at 5:00:01pm? Would only a person with a physical dollar in their pocket get the 'new' dollars?

No - every 'dollar' entry would be multiplied by 5 across the entire system and it all would be balanced out. The holders of 'real' dollars would receive the new dollars directly from the treasury but they would then backflush through the system through electronic entries in all the double entry balanced accounting systems through the linked assets/liabilities.

Naked shorts - different story. Maybe the analogy of 'counterfeit money' is appropriate there.

 

[M|S|M MYP]

I have no idea what the under lying mechanics are but the run up this week definitely feels like the MM's covering their asses. If things get very quiet next week I think that is another clue that they were doing as much. Hopefully not too much profit taking between now and S&P inclusion.

There's never a quiet week with $TSLA

 

[mejojo]

2020. The quarterly estimated tax payments are due two weeks after the end of the quarter in which they occurred. Paying the 3% penalty (the first quarter it's been that low BTW) is not onerous, but failing to pay it will almost automatically cause future years to be treated unfavorably. The new less-efficient, rich people favoring IRS still wants it's money as soon as possible.

I don't object to paying taxes, although I often object strenuously to the governments to which I must pay them. For TSLA's sake, if not ours, we might prefer a change in US government investment priorities to favor renewables and BEV's. That one quickly would go off topic.

We are lucky that TSLA is not paying dividends, in my view. Reinvestment is likely to continue for longer than my investment horizon.

Is there a reason that you don't qualify for the safe harbor exception?

"If you pay 100% of your tax liability for the previous year via estimated quarterly tax payments, you're safe. If your adjusted gross income for the year is over $150,000 then it's 110%."

 

[StealthP3D]

Another way to think of this:
If today the US Treasury declared that every current US dollar splits into 5 'new' dollars at 5pm eastern, would everyone that has a loan have to cover their loan and re-borrow 'new' dollars at 5:00:01pm? Would only a person with a physical dollar in their pocket get the 'new' dollars?

No - every 'dollar' entry would be multiplied by 5 across the entire system and it all would be balanced out. The holders of 'real' dollars would receive the new dollars directly from the treasury but they would then backflush through the system through electronic entries in all the double entry balanced accounting systems through the linked assets/liabilities.

Naked shorts - different story. Maybe the analogy of 'counterfeit money' is appropriate there.

Exactly! Counterfeit money doesn't get assigned new dollars - it creates an imbalance that must be rectified.

 

[Criscmt]

I keep getting pinged on options trading, probably just because I talk about my trades a bit, but it's easy to make tons of money on options when the stock price rises 10% every other day. So I think my success is mostly down to luck, there's no method other than picking what I think feels right.

The only scenario where I would strongly recommend LEAPS, would be when we get massive dips and crushed IV. So the post 19Q1 situation, the C19 dip, this is the time to load on the farthest-out LEAPS you can buy, preferable those at a strike close to previous ATH. I prefer my LEAPS to go DITM, far less risk over time.

I rarely buy lottery weeklies, mainly because I've lost my premium 9/10 times. Exceptions to this can be weeks like we have now - I'm thinking to get a few $2100 strikes for this, next, weeks after - will see how the premiums look when we open, might be too expensive. I've $40k cash sitting there doing nothing from the 4/9 c1500 I sold yesterday morning, thinking we were getting a pull-back - still it was 2x the money from when I bought last Friday for $20k, and that was from 2x 14/8 c1545, which cost $13.4k and were totally worthless before the split was announced, 10,000% rise after that - imagine if people had bought them fresh on that Tuesday...

So if you're playing cheap lottos, be prepared to lose the premium. If you play with serious money, be prepared for bad sleep, and lose your money.

Like I said, it's easy right now with the run-ups we've had, don't assume this will continue for ever.

Sure!
By the way, by "lottos" I was referring to furthest OTM calls, with the plan to sell after a short period.

> Like I said, it's easy right now with the run-ups we've had, don't assume this will continue for ever
I share the same view.

 

[mejojo]

So, price action looks like capping and damage limitation from the Market Monkeys. Perusing the open interest we see the most volume on $2100, but as the dust settles, $2000 is off the menu - puts piling up there, $2050 is painful (for them), so capping in the $2050/50 range with a push-down to below $2050 seems the the best they can hope for.

Full disclosure - I bought some $2100's expiring today for fun, to make things a not more exciting.
View attachment 578991

I have been wanking on the 2050 all morning, and now moved up to the 2100s. Good luck!

 

[Boomer19]

entity A:
Cust Side:
- long 300 customer shares on margin
- no shorts

Firm Side:
- loaning entity B 200 shares
- loaning entity C 100 shares
- dtcc position = 0

entity B
Cust Side:
- long 100 segregated (not in lending program)
- long 100 margin
- short 500

Firm Side:
- borrowing 200 from entity A
- borrowing 200 from entity C
- DTCC position 100 segregated

entity C
Cust Side:
- long 100 margin
- long 200 margin
- long 200 segregated
- long 100 segregated but enrolled in fully paid lending program
- short 200
- short 100

Firm Side:
- loaning entity B 200
- borrowing 100 from entity A
- dtcc position 200 segregated
_______________

post split - multiply everything by 5

note that DTCC (the depository) doesnt even know about:
- the shorts
- the long margin positions that are used to cover each short internally
- nor those lent to other entities to cover their shorts.

dtcc will be allocated from tsla's transfer agent, and relay to its participants:
- 0 for entity A
- 500 for entity B
- 1000 for entity C

most likely this will occur a day or two after 8/31 ex date

the brokers/entities will adjust their stock borrow and loan contracts with each other to reflect the split shares, and price per share, with the same collateral (although marked to market)

thats all the accounting that is done
_______________

to the degree that the unaccounted (by a central clearing house or depository) for short, borrows and loans, inflate...is what could be a catalyst for such scrambling by participants to reduce these balances in time. i think this is what many are contemplating...

i am..but i argue that in order for them to consider scrambling to reduce this exposure, we need added catalyst that drives the demand for borrowable shares above supply

but the entities are still accounting for them..this doesnt make them counterfeit. it just means the central depo doesnt know about them in these cases.

 

[woodisgood]

I have been wanking on the 2050 all morning, and now moved up to the 2100s. Good luck!

Wow you must have really good aim!

 

[SOULPEDL]

Can I just vent a little of my frustration with the Bay Area here?

First we have Covid so everyone is more or less stuck out home.

Then for the past days straight it's been reaching about 100 degrees here on the Peninsula (south of SF, north of San Jose). This area is known for having relatively mild weather historically, so much so that most of houses built mid-century have absolutely shitake for insulation and no AC. There's not even space in walls / ceilings to add AC - people either add it onto their roofs (very ugly) or during a full renovation.

But usually most people in this area don't even have it because the hot days were never that hot and too few inbetween. Now it's getting more frequent. And PG&E can't even handle the electrical demand so they are shutting off people's power again.

This is in arguably the most expensive market (outside of Manhattan) in the U.S.

Then Saturday night there was a totally freakish thunderstorm that came in (it wasn't even anywhere on forecast Saturday) and the lightening struck 2000 times in the Santa Cruz mountains, starting a whole bunch of fires.

Now that smoke is covering most of the Bay Area (trapped in by mountains) and the air quality is horrific.

So here we are, it's too effing hot with no central AC. Can't hang out outside. And portable / wall unit ACs will just pump in more of this trash air. Oh and the power might go out again.

The connection to Tesla is of course global warming, poor grid stability, and heck even not good enough options of AC systems / filtration.

Even the Bay Area needs Tesla.

I also feel for ya. And this is west coast - all the way to BC Canada. (And if Az had trees, sorry Joshua Forest just isn't, we'd be on fire here too.)

Even more sad is my home turf in BC Canada (interior Okanagan) and "dream retirement" which isn't so dreamy now. Not only the fire smoke lingered for our whole Sabbatical 2 summers back, but now "you can't drink the lake water... leaky septic tanks"... ya CANADA backwoods, eventually feeding the Fraser river, and 5 miles from the famous Adams River, world known for heavy Salmon runs. We should have listened to the Indians, one who's my best friend.

When we get to Mars, we're gonna look back and appreciate what we used to have on planet earth.
Ouch.

 

[H Mak]

I’ve always wondered about the specific person who’s in charge of the buy/sell for a specific stock at the MM. What does their job look like? Are they basically placed in a cage with two buttons?

That is exactly how it works. Unless you are Mark Spiegel, in which case it's one button.

 

[StealthP3D]

to the degree that the unaccounted (by a central clearing house or depository) for short, borrows and loans, inflate...is what could be a catalyst for such scrambling by participants to reduce these balances in time. i think this is what many are contemplating...

To be clear, that is exactly what I'm contemplating. Unaccounted shares are not issued 4 new shares. It forces a complete accounting to take place during this specific period! Anyone who issued unaccounted for shares has to make good on them, not at their convenience, but at this point in time.

Whether it creates a short squeeze is a seperate question and that would depend upon the size of the (assumed) phantom share problem.

 

[jbcarioca]

Is there a reason that you don't qualify for the safe harbor exception?

"If you pay 100% of your tax liability for the previous year via estimated quarterly tax payments, you're safe. If your adjusted gross income for the year is over $150,000 then it's 110%."

Theoretically no, I am eligible. Due to the complexities of multi-country returns and capital gains treatments/timing different consequences I cannot use safe harbor. In other words, in Brazil taxes for most security transactions are deducted at source. Numerous other discrepancies make it easier to treat each transaction within the normal estimated tax schedules without exception. This topic will go far off topic so I'll stop.

One final point: my US stock portfolio has just risen by more than the amount I sold this morning, thanks to TSLA and AAPL, among others, all of which decided to forego the scheduled Friday drop! Did the whole world like the Biden speech that much?

 

[JRD1]

Exactly! Counterfeit money doesn't get assigned new dollars - it creates an imbalance that must be rectified.

I don't think anyone was disputing the naked short part - only the 'normal' shorts (with actual borrowed shares).

I go back and forth on the naked shares question. I initially thought they would have to cover but then the one article about the guy who lost $1M on pink sheet shares (sorry don't have the link handy) talked about how the CUSIP changes and that creates zombie share on the books of the market makers who don't cover. Basically a liability that can never be covered. I haven't mulled over that enough to think of how that could actually happen or what would happen in the future with that liability.

Ultimately I don't care. The brokerages will have all of this taken care of. Non-event for 99.99% of us with the TSLA stock and I'm not going to be investing in any market makers that might implode because of any zombie shares.


edit: found the link The Penny Stock Chronicles — An Investigative Series by The Intercept

 

[mejojo]

deworsifying

I am definitely stealing this word.....it is now in my vocabulary.

 

[AudubonB]

A very quick, non-Mod post for all who have GTC Sell orders floating around. Consider what I have alerted our brokers and decide whether you wish to do the same:


Hello _______________

Some mechanicals here:

With the TSLA 5:1 split coming right up, PLEASE ENSURE that the GTC price is adjusted, as follows:

First, alter the number of shares in the Sell Order to account for the changed number in Acct #Musk101, which now is XXXX, and shortly will be XXXXXX. The original GTC order was for, I believe, selling xxxxx shares.

Second, alter the Sell @ to $aaaa <===based on the NEW, post-split price. To be boringly repetitive, this is equivalent to $bbbbb pre-split. It is IMPERATIVE that $aaaa is NOT used pre-split!!!!

I am acutely aware this is very far out of the money and do not expect the target to be reached, but because this is coincident with the stock split I am anxious to ensure that nothing gets confused in the transition,

What a year so far! Watching everything like a hawk, I am,

Very sincerely,

Audie

 

[mejojo]

Wow you must have really good aim!

Been firing the leprechaun's gold coins.....

 

[wipster]

I have been wanking on the 2050 all morning, and now moved up to the 2100s. Good luck!

Not gonna touch that one...

 

[M|S|M MYP]

Not gonna touch that one...

Literally ... He must have a lot of ammo.

 

[wipster]

Literally ... He must have a lot of ammo.

Indeed

 

[jbcarioca]

...
Another way to think of this:
If today the US Treasury declared that every current US dollar splits into 5 'new' dollars at 5pm eastern, would everyone that has a loan have to cover their loan and re-borrow 'new' dollars at 5:00:01pm? Would only a person with a physical dollar in their pocket get the 'new' dollars?

No - every 'dollar' entry would be multiplied by 5 across the entire system and it all would be balanced out. The holders of 'real' dollars would receive the new dollars directly from the treasury but they would then backflush through the system through electronic entries in all the double entry balanced accounting systems through the linked assets/liabilities.

...

Some of us have lived through multiple national currency replacements. I have lived through seven of them. Stock splits do not mean much in comparison. Just as with the currency example, some governments figure out ways to cause any change into a taxable event, no matter how inconsequential it is in reality.