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

[tlo]

But, in that case, the broker would have to provide 4 shares upon the split to the lender, to cover the short's obligation, no? And, they'd have to get them from their own pool of shares, they couldn't borrow them, right?

No, what I mean is the broker can just make the short owe 5 shares.

 

[Unpilot]

This is a good example for us long and strong holders.

If you bought one share of Amazon at IPO you would have 12 after the split's
at today's closing price of $3,094 you would have $37,128.... Not bad for an original $18 investment.

Short's are screwed and we should start dancing on their graves.

Amazon stock split history: what you need to know.

 

[Krugerrand]

The question is will I be rich or rich?

Definitely rich.

 

[bhtooefr]

No, what I mean is the broker can just make the short owe 5 shares.

...so the broker credits the lender with the four shares and immediately marks them as lended to the short?

I guess if the lender is in any program to lend shares (which by definition they would be), that could automatically happen...

 

[Knightshade]

No, what I mean is the broker can just make the short owe 5 shares.

Except the dividend must be paid to the lender on the dividend date.

Which is August 28th.

So no, the short can't just "owe" 4 more shares whenever he wants.

Key Points About Regulation SHO

If the stock you borrow pays a dividend, you must pay the dividend to the person or firm making the loan.

You don't get the choice of NOT paying the dividend.


The short is essentially now forced to cover either 100% of his position before ~August 19th (if he wants to avoid the entire dividend thing by closing his position before the recorded date) or 80% of his position by August 28th (because he owes 4 shares worth 80% of the current price of 1 share at that time).


I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share.

But either way he has to provide them by the dividend date, not "whenever he feels like covering"

And the person who originally owned the lent shares has to receive 4 shares in lieu of his dividend by August 28th so it obviously matters to that person too.

 

[willow_hiller]

Re-reading the IR announcement, I'm pretty convinced this is not a normal stock split.

The biggest clue is the fact that there's a date of record (August 21, 2020). Regular stock splits don't typically have record dates, do they?

Anyone holding the stock on August 21 is entitled to 4 shares for each one they hold. What happens if someone buys a share on August 22? They've missed the record date, but the stock will start trading on a split basis on August 31.

 

[theschnell]

It is interesting that in the end, the short has to either buy or borrow additional shares on the 28th. There's no way around that... And they have to price that borrow at the market price I would think.

 

[M|S|M MYP]

What’s funny is that they don’t have these kind of ‘oh my god, retail investors are so stupid’ segments when Apple does a stock split. But Tesla does it and suddenly it’s news and an opportunity to poo all over Tesla/TSLA.

The fact remains there’s psychology involved whether you think it’s stupid or not, it exists. People would rather buy 5 shares for $1500 than 1 share for $1500. 5 is more than 1 despite both having the same value in the moment.

In context for TSLA, damn straight I’m happy as a pig in a trough of slop that I’ll now own 5xs more shares because I know where the SP goes long term. Unlike some here, I’m smart enough to use a calculator when doing math past 10.

Thought your threshold for math was 5...which is why you understood the split so eloquently.

 

[jerryfan2000]

Found following from Eastman | Stock Split Frequently Asked Questions

What is a 2-for-1 stock split in the form of a stock dividend?
A stock split is a common method for a company to increase the number of shares outstanding while maintaining the stock’s total valuation and the value to each investor after the shares have been split. A dividend is a common way to implement a stock split. Each Eastman stockholder will be paid (on October 3, 2011) one additional share of stock for each share he or she owns as of the close of business on the record date (September 15, 2011) for the stock dividend. For example, as of the record date if an investor owns 100 shares of Eastman common stock and the market price is $90 per share, that investor's total investment in Eastman stock would be worth $9,000. After the split that investor would have 200 shares of Eastman stock, but the market price would be approximately $45 per share. The value of the investor's total investment in Eastman would be the same -- $9,000 – before and after the stock split.


Does the stock split dilute the value of my Eastman stock by increasing the number of shares?
No, the stock split will not dilute the value of Eastman stock. Each investor will have the same proportionate interest of Eastman shares before and after the stock split.


Is this stock split a taxable transaction for me?
While individual stockholders should consult with their own tax advisor regarding their own specific tax circumstances, a stock split in the form of a stock dividend is generally not a taxable event for U.S. taxpayers. The tax basis of each share owned immediately after the stock split is equal to one-half of what it was immediately before the split. For example, if you owned 100 shares of the Company’s common stock that were purchased before the stock split with a cost basis of $90 per share, after the split you would own 200 shares with a cost basis of $45 per share. This summary of stock split tax consequences is not intended to be complete. Please consult with your tax advisor for any tax questions you may have regarding the stock split or your shares.

 

[bhtooefr]

I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share.

Nope, that won't work, as far as I can tell. (I looked into this.)

(And, @willow_hiller, I think this will answer your question, too.)

I think this boils down to... because the order is date of record (21st), dividend date (after close on the 28th), ex date (open on the 31st), what this effectively means is that Tesla keeps track of who's owed dividend on the date of record, and any sales after that, brokers have to keep track of who gets the resulting dividend, but anyone who's holding shares at the dividend issuing should get the dividend.

See how the Apple split, which while not a dividend, is the same way.

 

[willow_hiller]

Nope, that won't work, as far as I can tell. (I looked into this.)

(And, @willow_hiller, I think this will answer your question, too.)

I think this boils down to... because the order is date of record (21st), dividend date (after close on the 28th), ex date (open on the 31st), what this effectively means is that Tesla keeps track of who's owed dividend on the date of record, and any sales after that, brokers have to keep track of who gets the resulting dividend, but anyone who's holding shares at the dividend issuing should get the dividend.

See how the Apple split, which while not a dividend, is the same way.

Agreed. That makes sense.

If you buy a share on August 22, you're essentially buying a share plus 4 future dividend shares.

I wonder why they couldn't just make the date of record and the dividend date the same day.

 

[Knightshade]

Agreed. That makes sense.

If you buy a share on August 22, you're essentially buying a share plus 4 future dividend shares.

I wonder why they couldn't just make the date of record and the dividend date the same day.

Don't forget T+2

Some examples given here:
Stock Split – Corporate-Actions.net.

 

[Krugerrand]

Thought your threshold for math was 5...which is why you understood the split so eloquently.

I said 10 to make people think I was smarter than I really am. So thanks for pointing out reality to everyone.

 

[Chunky Jr.]

I know it doesn't make any sense, but I think a lot of people will want to buy stock before the split as it will feel like they are getting more "free" shares.

 

[InDaClub]

https://twitter.com/stevenmarkryan/status/1293318686003036160?s=20

 

[M|S|M MYP]

Funny how the sentiment on this board turns so quickly....earlier today, we were arguing (I mean discussing) the range of the Lucid AIR and how the range is BS and the testing was biased, etc, etc.....now look at us all....one big happy f**kin family again waiting to gather and have some brews

 

[oldTAVguy]

Except the dividend must be paid to the lender on the dividend date.

Which is August 28th.

So no, the short can't just "owe" 4 more shares whenever he wants.

Key Points About Regulation SHO




You don't get the choice of NOT paying the dividend.


The short is essentially now forced to cover either 100% of his position before ~August 19th (if he wants to avoid the entire dividend thing by closing his position before the recorded date) or 80% of his position by August 28th (because he owes 4 shares worth 80% of the current price of 1 share at that time).


I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share.

But either way he has to provide them by the dividend date, not "whenever he feels like covering"

And the person who originally owned the lent shares has to receive 4 shares in lieu of his dividend by August 28th so it obviously matters to that person too.

The shares created by the short on selling the shares must get their dividend. This they will get from Tesla, but the lender must provide the shares to the individual or pool from which they get the shares. These are not shares of record for Tesla to pay a dividend on. I think that this will cause a great call in of the shares from the shorts very soon because the certainty just became very great for the broker. And we know that they will make the short pay anything they are on the hook for. They have the collateral.

When the smoke clears after a while the brokers will gladly lend out the shares again, to any short that did not learn their lessons. They will get more fees, interest (likely at a higher rate) and the cycle will repeat, but there will be fear.

 

[MC3OZ]

I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share.

I assume that can happen, and the short now owes 5 shares instead of 1.
But the key is what happens to the price after the split if the after price was 1/5 of the before price, the short is not out of pocket...
But it is likely the after price will be higher, and each $1 move of the new price is 5X - hence $5 for the short.
I assume this may not force them to cover, but we still have possible S&P 500 inclusion and Battery Day coming, they will be forced to cover sooner or later...

 

[ByeByeJohnny]

So as good as a short squeeze if this is really a dividend sounds, for that scenario to play out it needs to be a real dividend. If it is, as others have pointed out, it also mean most (all?) non-US stock holders will be charged a 15% tax on that dividend. This is done on all cash dividends from US companies. I have no clue if it applies to stock dividends but I imagine it does or companies would have tried to game the system by giving out stocks instead to save their investors 15%.

I'm sure there will be clarifications on this but as it looks without more info I guess selling before the split and buying back after would be one solution. Apart from the almost guaranteed chance that the price will change wouldn't this create a sale of shares that the shorts could use to cover?

Then instead of the shorts being in need of shares it would be all non-US investors needing to fight to get back in likely as price goes up because that would be a lot of shares needing to be re-bought.

I really hope I'm missing something here.

 

[vikings123]

n this case, the dividend is 4 shares of stock

No. If this was a dividend like you are saying then longs should be getting 4 additional shares too at today’s SP, not the split adjusted price.

Even if I were to assume what you are saying is remotely possible do you really think Elon with all his 4D chess skills would have waited until now. Heck he would have announced the split instead of the releasing the short shorts. Sorry but what you are saying makes no sense.

I saw this on twitter and it sums it up really well.

Remember: this doesn't create more pizza, just more slices