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

[Krugerrand]

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

You’re welcome for the reminder. People here now thinking they all that and a bag of arguing chips. Meh. Amateurs.

In the end, I’m betting it’s as big a nothing burger as SC ended up. Well, except this time I’m making out like a way bigger bandit then I did then. FIVE times the shares. Are you kidding me?! Bingo. Jackpot. Etc., etc...

 

[Artful Dodger]

Is this true?

No. After Aug 31, instead of needing to find/buy 26M shares of TSLA, large index funds will need to purchase 131M shares of TSLA. The total dollar amount needed doesn't change, and that's not 'incognito' amounts of money. FYI, that's about $38B of shares needed, and that's based on $1,470/share.

Also by doing this split, Tesla will increase demand from retail shareholders who are currently 'priced out'. This just makes it harder for Index Funds to accumulate large volumes of shares, hence driving the price up even further. There's no way around this. It's gonna be yuge.

 

[Chunky Jr.]

Wed should be a roller coaster from the open. Strap in tightly.

 

[Michael A]

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

You were mentioning calls and loan contracts, so I didnt think this applied to what I was talking about.

Basically the bottom line is the final split share volume and amounts and are determined on 8/28.

What does 8/21 determine? Just trying to figure out why there is a gap of days.

 

[Mo City]

Think about it. It's a dividend. We really are going to get the new shares. Tesla does not dictate the stock price. It simply gives each of us 4 new shares for every share we own. The market is going to be the one sorting it out. The market is the one saying that each share is now worth 20% because there're 5x the shares but zero additional paid-in capital. From Tesla's perspective, the share price pre- and post-split is irrelevant.

Thank you. This is really all that needs to be said on the matter.

 

[Boomer19]

You were mentioning calls and loan contracts, so I didnt think this applied to what I was talking about.

Basically the bottom line is the final split share volume and amounts and are determined on 8/28.

What does 8/21 determine? Just trying to figure out why there is a gap of days.

antiquated “due bill” period

ex date is the key date.
ex is latin for without
as of ex date 8/31 it starts trading ex divined

 

[Boomer19]

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.

my bad thanks for heads up
it’s contract and strike...
not multiplier and strike.

see aapl coming up for reference
https://infomemo.theocc.com/infomemos?number=47369

 

[ZsoZso]

The lower unit price allows retail investors to purchase easier, its good for liquidity.
However, it also changes the unit value of options which are always in blocks of 100 shares.
With the SP being in 1400-1500 range, it was getting expensive to play with covered options, with the lower unit price it becomes much easier, so more retail investors can play with options. However, if I understand correctly, the high volatility of TSLA was partly because of high volume of option trades that are hedged by MMs via trading shares in counter. So that would imply that the stock split will further increase the volatility of the stock, right ?

Am I just trying to find something negative where is none ?

 

[StarFoxisDown!]

I could honestly talk myself into inclusion happening tomorrow or Wed Sept 2nd.

The more I think about it I could see a scenario play out like such......if the speculation about the dividend part and shorts is actually true:

Tesla and S&P have been in talks. Tesla is unwilling to dilute at the current stock price so they announce this dividend stock split, forcing a short squeeze that takes the stock up to $2,000 or higher(I personally would want something higher than 2250 for a offering price)...at which time Tesla does a small stock offering on Sept 1st to appease S&P and inclusion is announced after the markets close on Sept 2nd. The stock offering would be the same percentage of shares as pre stock split but because the share float is much larger from the stock split, the total number of shares in the offering "seems" bigger than before. It would be window dressing for sure, but could be compromise in that it "appears" that Tesla is creating a larger number of shares to appease S&P but the dilution percentage stays the same to us.

Something had to have happened or been discussed in the background for Tesla to move up the stock split by nearly a month and a half.

Just to quickly reply to my own post....I'm purely speculating and I wouldn't make investment decisions around this. This was the first time I've even allowed myself to speculate on the stock action in a while and I'm already content to not speculate further. I'm already getting exhausted from all the chatter and speculation

I do however think there's an underlining reason for surprising everyone by doing this earlier than they said they would. I honestly just want all of this to be over with(s&p inclusion, stock split, stock offering, etc..) so that things can go back to just being about the company's performance

 

[FrankSG]

Tesla Newly Established An Insurance Brokerage Company in China

August 12, 2020 (Beijing time), according to the China National Enterprise Credit Information Publicity System, Tesla has established an insurance brokers limited company with a 50 million yuan register capital in China. The new insurance brokers company's address is where Tesla Gigafactory Shanghai located. The company's business scope is insurance brokerage.

In August 2019, Tesla introduced the "Tesla Insurance" service in the Untied States to provide a very affordable rate to it's owners:

"Starting today, we’re launching Tesla Insurance, a competitively priced insurance offering designed to provide Tesla owners with up to 20% lower rates, and in some cases as much as 30%. Tesla Insurance offers comprehensive coverage and claims management to support our customers in California, and it will expand to additional U.S. states in the future."

 

[Big Time]

Fine.....I’ll fire up the ol spanking machine

 

[ggr]

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"

I agree. The short sold at (let's say) $1500, one share. He got $1500 in his brokerage account. Now the split happens, and the stock price hadn't changed beforehand. The short has to deliver 4 shares to the lending broker, which he has to buy on the open market at (post split) $300 each. He also still owes one share, valued at $300. Nothing has changed, right? Well, except for the fact that the short has to buy those 4 shares. At whatever the price actually is. Forced buying will drive the price up.

 

[tinm]

This must be the worst day in shorts history...
Shorting in effect increases the float. Say Tesla issued 200M shares, and 10% of them are now shorted. The float is thus 220M.
Tesla announces 5:1 split in a form of a dividend so it issues 4 shares for every existing one: 4 x 200M = 800M new shares.
But the float is expecting to receive 220x 4 = 880M of new shares. Where will those missing 80M come from?
Tesla did not issue them, shorts will have to use magic or buy them on the open market in the next 10 days.

This might get ugly...

Until I hear otherwise I have to think that this whole split thing is the brainchild not of Elon but recently-added board director, Hiro Mizuno, who as we know, is no friend to shorts.

I think he wants them to feel pain. I suspect they are about to.

[EDIT: Yes, yes, I just in the past few minutes realized that after reading the post I'm replying to, a thousand other posts also talked about Hiro. Great minds think alike, etc. That is all. At ease.]

 

[Steve m]

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?

No I am not implying that at all.
Read the post i was responding too.

You are asking for free money. As if you could sell a share and then get 80% of the value back leaving the buyer with only 20% of what they bought.

Who is going to agree to that as your mark?

 

[smorgasbord]

Can someone explain the timing aspects?

For instance:

Each stockholder of record on August 21 will receive a dividend of four additional shares for each held share to be distributed after close of trading on August 28.
Trading will begin on a stock split-adjusted basis on August 31.

What about the people who buy the stock on Aug 24, 25, 26, 27, or 28?

For a "normal cash dividend" they'd be out of luck - that money goes to the stockholder of record.

But, this isn't a normal cash dividend, so how does it work?

 

[Bet TSLA]

Okay, so all speculation on what the split means aside, what are people's predictions for the close on Wednesday and Friday this week? Are we going up or down? How much?

I'm going to predict that in all the excitement we close near 1500 tomorrow, and 1580 on Friday. But I'm always the optimist.

 

[ggr]

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.

Look at the total number of outstanding shares, including the ones "created" by short sellers. If there were no short sellers, you're right, nothing changes. If there are a significant number of short sellers, as was the case with Apple not so long ago, someone has to come up with money to buy extra shares. AAPL is up much more than the markets, for no apparent reason, post their split. I expect the same to happen to TSLA.

 

[CanadaEV]

Others here are probably more educated on this stock dividend than I am. However, I am seeing this referred to as a stock split, but from what I've been reading, it is not that. It is a stock dividend. It seems to have accounting implications for Tesla. Fortunately for investors, unlike a cash dividend, it has no tax implications until the dividend shares are sold.

Here is a good explanation: Stock Dividend - Definition, Example, Journal Entries

 

[ggr]

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


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.



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.

Where did you get this "non-voting" share stuff? TSLA doesn't have any special shares; they're all common (voting) shares.

 

[ggr]

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.

Correct. So long as the number of shares divides evenly, they just adjust the number and strike. It's only in the weird cases (like SCTY) that they issue special options with non-standard deliveries.