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

[M|S|M MYP]

Could one conceivably buy 100 shares on August 21st at 3:59pm, hold them for the weekend, sell them Monday or Tuesday and be eligible for the dividend of 400 shares to be distributed on August 28th? Is there a holding time frame criteria?

The dividend payout is equivalent to 4 shares potentially valued at $300 plus per share.

I realize buying and holding 100 shares x $1500 per share ($150,000) of a volatile stock for a few days could be a little risky but it is not going to go down $1200 (1/5 share price, $300 x 4 shares) in 2 days.

The end payout of 400 shares x $300 per share is $120,000 .....

What am I missing?

Dunno if this is a serious question or not......

 

[JRD1]

What about person C who bought the share from B? B short sold that share. In this instance, both person A and person C are supposed to be credited with the 4 new shares, but only person C is getting it. B will have to make A whole by giving the broker 4 shares who will then credit it to A.

Isn't that how it works?

Yes - did you see at instant 2 how person A is now owed 5 shares? That’s where they got their 4 new shares.

 

[Steve m]

Could one conceivably buy 100 shares on August 21st at 3:59pm, hold them for the weekend, sell them Monday or Tuesday and be eligible for the dividend of 400 shares to be distributed on August 28th? Is there a holding time frame criteria?

The dividend payout is equivalent to 4 shares potentially valued at $300 plus per share.

I realize buying and holding 100 shares x $1500 per share ($150,000) of a volatile stock for a few days could be a little risky but it is not going to go down $1200 (1/5 share price, $300 x 4 shares) in 2 days.

The end payout of 400 shares x $300 per share is $120,000 .....

What am I missing?

Who is going to buy that 1 share for $1500 knowing that it is going to drop in value to $300 in a few days?

 

[kengchang]

Who is going to buy that 1 share for $1500 knowing that it is going to drop in value to $300 in a few days?

Whoever sold you that 1 share forfeit the extra 4 shares to you, the new buyer.

 

[Michael A]

Maybe what I am missing is on Friday Aug 21 at 4pm the price changes to 1/5 immediately?
The press release from Tesla says the stock split adjusted price will begin on August 31st NOT August 21st which is the on record date.

There is a 10 day gap between on record for stock ownership and split adjusted price.

 

[tlo]

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.

Respectfully, I don't think you're correct, and by being so certain, you are misleading a bunch of shareholders.

I believe what you're describing applies if Tesla issues a stock dividend by diluting current shares similar to how they would issue stock compensation to employees. This is not what's happening. It is indeed a stock split where the number of shares increases 5x, but each share is worth 1/5.

The shareholder who is lending out shares has entrusted their shares to their broker. The broker is obligated to return the shares at any time the shareholder decides to sell. A stock split is immaterial to this obligation because the position value does not change.

Example:
Shareholder A owns 1 share of TSLA and joins the share lending program at Broker B to allow their share to be lent out.
Broker B takes the 1 share and lends it to Shortseller C.
The share is sold short to Shareholder D from another broker.

Shortseller C pays 0.5% interest to Broker B.
Broker B pays 0.25% interest to Shareholder A.

Stock split dividend happens.
Now Shareholder A is entitled to 5 shares which is trading at a new price of $300.

What does Broker B do?
Force Shortseller C to close 4 shares so both Broker B and Shareholder A stops earning interest?
What is Broker B going to do with those 4 shares? Wave them in front of Shareholder A and tell them they'll stop earning interest on them? No, Shareholder A has already agreed to lend out their position. Because this does not increase risk for the broker, they will continue to borrow the 5 shares from Shareholder A and lend it out to Shortseller C unless Shareholder A decides to call back (sell) their shares at any time.

 

[Steve m]

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.

Unless they are naked shorts and most should not be then if person A lent out 1 share to person B and B sold to C then after the split.

C will have 5 shares.

B will owe A 5 shares.

A has zero shares just an IOU from B for 5 shares because they lent them out

 

[Michael A]

Who is going to buy that 1 share for $1500 knowing that it is going to drop in value to $300 in a few days?

Who cares at that point because your getting 4 shares as a dividend payout 10 days later.

Can anyone explain to me if I am wrong? Do I need to hold the original 100 shares until the dividend date?

 

[JRD1]

Everyone is way over thinking this.

The Overstock example illustrates this. They developed this intricate scheme to try to force shorts to cover because a normal split/stock dividend DOES NOT FORCE a short squeeze. It may help cause one or add to one but does not FORCE shorts to do any covering.

@mongo @tlo @vikings123 are in my opinion generally correct in how they are trying to explain it

 

[mongo]

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.

Shares before the dividend date are not the same as shares after and covering is a totally seperate thing.

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.

The original lender had 1 non voting share. Post split/dividend they would have 5 non voting shares. In the instant of transition, the broker bumps them up 4 shares (from margin or existing pool) and then loans them out.

The share lender has to be given 4 real voteable shares, they can't be "fake" non-voteable shares like the one they are holding in place of what they lent out.

But, after thinking about it some more I think the broker will just handle this for the shorts in the background. There are plenty of shares available to borrow, so the broker will just borrow 4x more shares and deliver them to the lenders, and then update the shorts account to reflect that they lent those out as well. And once they have delivered those shares to the lender they can then borrow and lend them out just like the original shares.

Exactly, they must be given 4 shares, but those can immediately be lent out, just like the original share. Since this all occurs during non-trading hours, it is instantaneous.

 

[oldTAVguy]

Unless they are naked shorts and most should not be then if person A lent out 1 share to person B and B sold to C then after the split.

C will have 5 shares.

B will owe A 5 shares.

A has zero shares just an IOU from B for 5 shares because they lent them out

won't that be fun to watch. That is why the will be called in asap.

 

[dl003]

The share lender has to be given 4 real voteable shares, they can't be "fake" non-voteable shares like the one they are holding in place of what they lent out.

But, after thinking about it some more I think the broker will just handle this for the shorts in the background. There are plenty of shares available to borrow, so the broker will just borrow 4x more shares and deliver them to the lenders, and then update the shorts account to reflect that they lent those out as well. And once they have delivered those shares to the lender they can then borrow and lend them out just like the original shares.

Brokers can help the shorts, but whats in it for them? If, like you suggested, the shorts can just cover and then reshort immediately, theres really no interest lost on the brokers part. The risk Im seeing here for them is: can they just unilaterally modify the borrowing arrangement? These things can go wrong a hundred different ways and the people who do things unsupported by the contract language will almost always be at fault. If this is a routine thing for them, fine. I just dont know that it is. My gut feeling is at least they have to ask for the shorts consent first. However, as soon as some folds, we can have a squeeze that forces the rest out. Say you decide to buy the shares, will you (a) reshort immediately, thinking that everybody else is also getting squeezed or (b) wait a while until it stabilize? One would think that if the shorts work in tandem, none would get squeezed, bur game theory says otherwise: each one of them will try to preserve their own capital and therefore wont reshort until they think the squeeze is over.

 

[Steve m]

Who cares at that point because your getting 4 shares as a dividend payout 10 days later.

Can anyone explain to me if I am wrong? Do I need to hold the original 100 shares until the dividend date?

Read the message I was responding to

 

[Krugerrand]

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)

This is mouse nuts. You should have been here during the Solar City acquisition.

 

[Ameliorate]

if you have 1 november20 1500 call
for example

it will now be 1 november20 300 call that delivers 500 shares of tesla (rather than 100 at 1500)

I would suggest it would become 5 november 20 300 calls that deliver 100 shares each. Hopefully unless you know otherwise. No need to create special options that become hard to trade, the exception to the rule being a non conventional split ie 3:2 etc would create an option to buy 75 shares at x price.

 

[Michael A]

Read the message I was responding to

Are you suggesting that between the dates of Aug 21st and Aug 31st if I sell 100 shares for $1500 each there is some accounting that occurs in the background so after the dividend date I would owe some amount?

 

[Boomer19]

Are you suggesting that between the dates of Aug 21st and Aug 31st if I sell 100 shares for $1500 each there is some accounting that occurs in the background so after the dividend date I would owe some amount?

scroll to top and read my explanation. you’re overthinking it

 

[Off Shore]

This is mouse nuts. You should have been here during the Solar City acquisition.

Thanks for the reminder, it helped. My skull DIDN'T actually explode then, so it probably won't now.

 

[RobStark]

Media seems focused on saying it's a 60k vehicle.

Many here seemed focus on the Launch Edition at ~$150k with about 250 units.

This is like focusing on the price of the Model S Founders Edition or Signature Edition.

 

[printf42]

Another good outcome from the split is we would fill almost all the gaps left over the past year.
Oh but that big one from 250 to 300...
/s