The original theory (without diving back into the argument over if the theory is "right" or not for shorts, naked or otherwise)- they have to EITHER:
Deliver 4 real voting shares as a dividend in lieu to whomever lent them the shares they shorted, and deliver them by end of day on August 28th
or
Get out of their short position before that- with 2 days ago (T-2) being the "easiest" deadline for them to do so for back end paperwork/insuring everything is completed on time purposes but in theory they could cover later via due bill mechanics.
Some have speculated at least some of the run up since the split is shorts doing the second one.
if short you don’t have to deliver any shares back to anyone by any date because of the split, except otherwise traded shares that fall within the regular settlement cycle
if i’m settled short 100 at close friday,
i’m borrowing 100 shares to cover the short
then monday i open
short 500 versus
borrow of 500
that’s it
as long as the availability of tesla stock is cheap, i can keep my short of 500 open until i decide to “close” it (of course only if i think the stk will come back)
dunno why anyone would short this thing but...to each his own
if i trade short on friday 100 shares
this won’t settle until tuesday
i will still open short 500 monday.
on tuesday i’ll be settled 500 short
i’ll be required to borrow 500 shares, which should be easy considering the current stock loan market liquidity for tesla
in either case i do not owe my excess split shares or my original position back to anyone directly because of the split
the borrow prevents the fail to deliver
where it becomes a domino effect is if the broker then recalls the loan that my broker uses to cover my short - or if the long margin my broker used to cover my short sells his/her position.
then the broker has to locate another 500 shares to cover me
if that cycle continues and accelerates due to liquidity/squeeze/whatever then i may be forced to cover and get out of the short