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

[oldTAVguy]

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


View attachment 575199

But the brokers through the shorts have to get dividend shares to cover their "synthetic" shares.

The market acts as if Tesla has Real Shares + Shares Created by Short Selling. The shares created by Short Selling need to be taken into account.

 

[tlo]

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.

I would very much like this to be true and for shorts to have to cover, but I don't think this will be the case.

The short shares that are bought a second time are fabricated by the broker. They don't actually exist. Even if short sellers are forced to cover 4 post-split shares, that would just mean closing 4/5 of their position with the broker. The fabricated shares neither existed before or after the stock split.

 

[oldTAVguy]

This could mean share call backs from shorts and margin calls in the morning, maybe some even went out tonight.

We shall see what happens tomorrow. I may be wrong, but there could be a large turd in the short's punch bowl.

 

[Hock1]

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.

"I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share". Now you're getting it. At the effective date, the short (his broker) merely delivers another 4 shares that are short (remember at the effective date there are 5 times as many shares available). Hope you understand.

 

[Knightshade]

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.

That makes no sense.

It's 4 shares. The price has nothing to do with anything

If you were the holder of record on a certain date- you get paid a dividend of 4 shares of Tesla stock after trading ends August 28th.

That's the end of the "paying the dividend" part of this.

Then, starting August 31 all shares start trading at 1/5th original value.


The short owes the lender 4 shares of stock end of day August 28th.

Just as he'd owe him X dollars in cash if this was instead a CASH dividend of X dollars instead of a SHARE dividend of 4 shares.

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.

What I'm saying is literally the law regarding short selling and dividends. You don't seem to entirely understand it though.

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

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

That has literally no relevance to anything to do with the shorts obligation regarding dividends.

 

[vikings123]

But the brokers through the shorts have to get dividend shares to cover their "synthetic" shares.

The market acts as if Tesla has Real Shares + Shares Created by Short Selling. The shares created by Short Selling need to be taken into account.

All the broker will do is take the share price on Aug 31st and divide it by 5. So if the short owned 5 shares at 10$ today he would owe 25 shares. The SP can go up between now and the 31st resulting in more money owed. That is the risk shorts are taking.

Like I said earlier I expect most if not all shorts to cover before the split and then reactivate their short positions after the 31st. Pretty much every short that shorted TSLA today is getting a divorce tomorrow.

 

[Bet TSLA]

Don’t think the implications are hitting them yet. Not really hitting most of the TSLA investment world just yet either.

Again, it all hinges on whether it’s actually a dividend split.

But even if that turns out not to be the case, a regular old split is still bullish AF.

There are no implications. It doesn't matter what kind of split it is. Many here seem to be turning ignorance into visions of glory. This is a whole lotta nothing, making no real difference to anything or anybody. Nothing special will happen to the shorts. Nothing. It's a no-op. So please just stop all this stupid speculation. Nothing special will happen.

The only argument to be made is that it's a "bullish signal" or something like that. I give it as much validity as a "bounce off the middle Bollinger Band", i.e. a load of crap. It's positive if enough people believe it's positive. Of course the drop over the past few days is pretty much meaningless as well, so going back up 100 points or so is all in a day's randomness. It will certainly make my portfolio happier.

 

[lafrisbee]

If ya noticed I ain't said SH!T for dang near 6 hours mainly because I am clueless about how this plays out. I did immediately think of Hiero, and eventually someone brought him into it. But I have learned that some of you seem to know what this is going to do, and most of you don't. But I can't tell which ones actually know what this is going to do to anything.
I did eat all the Orville Redenbacher in the house.
I am gonna have to buy a whole lot more so I can sit back and watch all the drama.
EDIT: I was writing before I read BetTesla's post above mine. I still don't know if he is even right... or one of you...
(insert popcorn-eating emoji)

 

[Knightshade]

"I mean- I suppose he could just borrow MORE shares to provide those 4 per borrowed share". Now you're getting it. At the effective date, the short (his broker) merely delivers another 4 shares that are short (remember at the effective date there are 5 times as many shares available). Hope you understand.

I understood in the first place.

You're missing the important last piece though.

The short has to provide the 4 actual shares to the lender in lieu of the dividend they'd have otherwise received.

It doesn't matter where he gets them- he still has to pay them the 4 shares on the 28th.

The lender can't just waive his hands and go "Naah, just owe me 5 whenever"

 

[oldTAVguy]

All the broker will do is take the share price on Aug 31st and divide it by 5. So if the short owned 5 shares at 10$ today he would owe 25 shares. The SP can go up between now and the 31st resulting in more money owed. That is the risk shorts are taking.

Like I said earlier I expect most if not all shorts to cover before the split and then reactivate their short positions after the 31st. Pretty much every short that shorted TSLA today is getting a divorce tomorrow.

But, they get a loss now. And the are on the hook for the dividends due on "synthetic" shares created by their short. Tesla is not providing those shares, they have to come from somewhere on a date certain. They can restart their short positions again. Let them donate more funds for my enjoyment.

 

[vikings123]

That makes no sense.

It's 4 shares. The price has nothing to do with anything

If you were the holder of record on a certain date- you get paid a dividend of 4 shares of Tesla stock after trading ends August 28th.

That's the end of the "paying the dividend" part of this.

Then, starting August 31 all shares start trading at 1/5th original value.


The short owes the lender 4 shares of stock end of day August 28th.

Just as he'd owe him X dollars in cash if this was instead a CASH dividend of X dollars instead of a SHARE dividend of 4 shares.




What I'm saying is literally the law regarding short selling and dividends. You don't seem to entirely understand it though.




That has literally no relevance to anything to do with the shorts obligation regarding dividends.

OK. My last post on this topic as I want to be in Fred’s good books . I think the word dividends is throwing everybody off. As has been pointed out before it is just a technical term.

Can you tel me If there is a precedent? We will see when the dust settles, either you voluntarily stop posting or I put you on ignore. Cheers.

 

[dl003]

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.

You don't pay taxes on stock dividend. At least that's my understanding.
Stock Dividends | H&R Block

 

[Artful Dodger]

I don't really understand the 5:1. If you're going to do it, why not 10:1?

Because 2021.

 

[oldTAVguy]

This is a complex time: possible S&P inclusion, battery day, growing sales and the 4th dimension to this chess game is TIME. Why the stock dividend now? Elon has a degree in economics (he graduated in 1997 with a Bachelor of Arts degree in economics from Wharton ) and almost every aspect of economics has a time or when component.

 

[bballshinobi]

Just to chip in, I found this:

Overstock Is Paying a Digital Dividend and That's Just Where the Intrigue Starts

Overstock paid a digital dividend share back in 2019

 

[OrthoSurg]

There we go. Just an order of magnitude off.

10 times to 100 times

I wondering

The share appreciation will definitely come...how soon? Given the economic environment...probably longer than it should. I do plan on holding $TSLA for a very long time, at least 10 more years until i retire...unless of course it gets to $5k/share in 3 years and then i will consider selling maybe 2 or 3 to buy a nice bottle of whisky

3 x $15,000 is one of a hell good bottle

 

[kengchang]

Just to chip in, I found this:

Overstock Is Paying a Digital Dividend and That's Just Where the Intrigue Starts

Overstock paid a digital dividend share back in 2019

That's not a split though, very different

 

[Knightshade]

OK. My last post on this topic as I want to be in Fred’s good books . I think the word dividends is throwing everybody off. As has been pointed out before it is just a technical term.

Can you tel me If there is a precedent? We will see when the dust settles, either you voluntarily stop posting or I put you on ignore. Cheers.

If you wanna ignore me for explaining your facts are incorrect, you do you

There's a literal, specific, legal difference between a split and a stock dividend.

In a split there's no impact on short holders at all.

When a dividend is issues, the short is required to provide the same thing the lender would've gotten as a dividend to that lender.


Those aren't the same things, and those aren't just a difference what you call things.



Let's consider CASH dividends since there's tons more written about them but then realize you just sub shares of stock for cash and it's the same exact trading rules




Person A has 1 share of stock. He allows person B to borrow it to sell short. He gets some income for allowing this as part of the lending fee. He is no longer the holder of record, but is owed his share back at some point when person B closes his position.

Person B borrows 1 share of stock short, and sells it for money. He pays a cost to borrow, and eventually will need to close his position but can pick when.

Person C buys the 1 share from person B. They are now the owner of record of the stock.


All good so far?

Now, the company says they will pay a $4 dividend to all owners of record on August 21, and pay it out to them on August 28.


On August 21, Person C is the owner of record. On August 28th the company will pay him $4. The company doesn't care about persons A or B and won't do anything regarding them.


Under SEC rules cites to earlier- Person B owes $4 to person A on August 28th in lieu of the $4 dividend he would have received if he hadn't lent his stock out.



This is very clearly documented about a billion places.


Now just sub in "4 shares of Tesla" for $4 in the above and it's exactly the same situation if this is actually a stock dividend instead of a cash dividend.


Edit to clarify thanks to MP3Mikes post- they have to give Person A 4 real actual has a vote shares, not 4 more IOUs. That's the difference.

 

[dm28997]

I'm really enjoying this.

 

[JRD1]

Just to chip in, I found this:

Overstock Is Paying a Digital Dividend and That's Just Where the Intrigue Starts

Overstock paid a digital dividend share back in 2019

That was not for an identical share that was already owned so not relevant to this situation. They purposely set it up so you could not get the dividend any other way.