The Rolling Naked Tesla Short

[Zzzz...]

note: mm can naked short as they are exempted from normal rules.

the market maker has an exemption. he's allowed to naked short for the purpose of making markets.

The very moment I read first quote, the scheme started to make sense. Basically MM carry short position for a guy, but MM do not have to pay short interest!
That sucks, and the system is screwed. (While I have not understood why the guy saving on short interest only for 3 days, not for whole week, but those are nuances).

and i still can't find another explanation for why thousands upon thousands of deep-in-the-money calls keep trading on the philadelphia options exchange and never show up in open interest the next day.

WAG from the noob, may be cuz calls were actually "exercised", right away the day calls were sold and from the point of particular software they might simply not counted toward open interest. Could be a bug, or even technicality that depends on how you define OI.

i know my theory sounds a bit insane.

It makes perfect sense. At least in my mind.

 

[Johan]

But either way, I mean even if this trader is using this scheme to in essence carry a short position without paying (or at least paying less) interest for it, he is still loosing money as the stock goes up? Or do you imply that by repeating this manouvre all the time he just continues to carry the same short position "for free" until he chooses to in essence close it?

 

[Zzzz...]

But either way, I mean even if this trader is using this scheme to in essence carry a short position without paying (or at least paying less) interest for it, he is still loosing money as the stock goes up?

Yes, that is correct. He is loosing money if stock goes up, and making money if it goes down.

Or do you imply that by repeating this manouvre all the time he just continues to carry the same short position "for free" until he chooses to in essence close it?

Short had to cover one loop of trade. Doesn't matter if he initiated next loop before or after(probably after) closing previous one. So he should be squeezed eventually. Or exit with a loss, unless stock go down.

IMO. But wait for luvb2b opinion

 

[Causalien]

Yes, that is correct. He is loosing money if stock goes up, and making money if it goes down.


Short had to cover one loop of trade. Doesn't matter if he initiated next loop before or after(probably after) closing previous one. So he should be squeezed eventually. Or exit with a loss, unless stock go down.

IMO. But wait for luvb2b opinion

What if the trader is just trading 100 lots of option 10 times per day really fast without actually holding any position overnight? It'd make sense as a Martingale strategy, the volume would show up high while the open interest would be zero since everything is exercised and covered the same day?

 

[kenliles]

I know this is all conjecture on possible theory- but why do you guys think the trader is rogue? The most likely in my mind is the trader is the MM, going short in guise of making market

 

[luvb2b]

But either way, I mean even if this trader is using this scheme to in essence carry a short position without paying (or at least paying less) interest for it, he is still loosing money as the stock goes up? Or do you imply that by repeating this manouvre all the time he just continues to carry the same short position "for free" until he chooses to in essence close it?

correct that he loses money as it goes up.

what he avoids is two things. the first is paying the borrowing charges for borrowing real shares. in this sense, he carries the positon "for free". thats a huge savings recently.

the second, more important thing - he avoids borrowing, selling, and delivering real shares. in effect he is cheating the buyers who buy from him because they will not receive shares at settlement in exchange. that's what i think is happening, and that is naked shorting, which is now illegal. in a legitimate short sale, the short borrows real shares and essentially gives the long lender a collateralized iou. the buyer is buying real shares and expects delivery of real shares. this guy is short circuiting the whole process.

zzz is correct, if the stock keeps rising he will eventually give up and cover. as hard as this guy has been working on this i am sure he would be part of the recent propaganda war against tesla in the media.

- - - Updated - - -

What if the trader is just trading 100 lots of option 10 times per day really fast without actually holding any position overnight? It'd make sense as a Martingale strategy, the volume would show up high while the open interest would be zero since everything is exercised and covered the same day?

generally the blocks that are put up are quite large. you can see from my lists of trades that 100 is actually on the small side. the problem with your theory is that generally the trades are at the same price (other than when they are seconds apart) so there is no economic gain or loss in the trades. also the trade sizes are large and being moved on the bid side of the spread all the time. so how do you sell and buy a huge position on the bid at the same price on big size hours apart? a virtual impossibility.

kenliles, i am using the term rogue to mean "thief", not rogue trader as in the sense of nick leeson.

 

[jeff_adams]

What's to stop this trader from staging a Tesla "crisis" to depress the stock so he can get out of his desperate position? That would be very concerning.

 

[Zzzz...]

Post deleted per request

 

[luvb2b]

What's to stop this trader from staging a Tesla "crisis" to depress the stock so he can get out of his desperate position? That would be very concerning.

my experience is that he will try something. it may have been that recent media blitz. it may be something else. if my research is correct he only has about a month left. that's the date for the next earnings release i expect to be better than most expect.

my experience is you want these desperate shorts in the stock. several awesome stock moves i have been involved in have had desperate shorts. in one stock they tried filing a lawsuit about some stupid thing. they had been buying puts for weeks ahead of that event. and guess what? that was the bottom. these games are just part of the stock market and probably have been since the beginning of stock markets.

when the desperate shorts finally get blown out of their position, a short term top will be close at hand.

all i really want is to force this guy to pay for the "priviliege" of being short.

 

[PureAmps]

Getting caught up on TMC, and came across this thread. Interesting theory, my only question is why go to all this trouble? What is the maximum return this trader could realize for this level of effort/risk?

I've actually never understood the large short interest in TSLA in general. It makes very little sense from an investment point of view as a standalone trade. The maximum return on a short position is 100% plus any rebate rate. And that is if the stock goes to zero. Given TSLA's negative rebate rate, there is very little to be made by holding a short position in the stock. Even trading in/out of a short position would give negligible returns and require incredible luck on timing. Adding options to the mix and playing with T+3 settlement windows just adds a huge amount of risk. So what is the reward?

 

[MikeL]

Getting caught up on TMC, and came across this thread. Interesting theory, my only question is why go to all this trouble? What is the maximum return this trader could realize for this level of effort/risk?

I've actually never understood the large short interest in TSLA in general. It makes very little sense from an investment point of view as a standalone trade. The maximum return on a short position is 100% plus any rebate rate. And that is if the stock goes to zero. Given TSLA's negative rebate rate, there is very little to be made by holding a short position in the stock. Even trading in/out of a short position would give negligible returns and require incredible luck on timing. Adding options to the mix and playing with T+3 settlement windows just adds a huge amount of risk. So what is the reward?

Safe to say a lot of people figured that TSLA WOULD go to zero. One of the most shorted stocks ever! So the risk seemed small even if the return on the downside is limited (can't go below 0). If luvb2b is right, this guy got in big short over the course of weeks & months and is now in trouble to the tune of several tens of $millions and is illegally maintaining his desperate situation as the price refuses to drop.

 

[kenliles]

kenliles, i am using the term rogue to mean "thief", not rogue trader as in the sense of nick leeson.

Got it thanks. Makes more sense

 

[PureAmps]

Safe to say a lot of people figured that TSLA WOULD go to zero. One of the most shorted stocks ever! So the risk seemed small even if the return on the downside is limited (can't go below 0). If luvb2b is right, this guy got in big short over the course of weeks & months and is now in trouble to the tune of several tens of $millions and is illegally maintaining his desperate situation as the price refuses to drop.

Oh, I don't doubt that some people had an investment thesis that TSLA would go to zero. The only problem is that reality is getting in the way of that theory, and has been for some time. Yet short interest remains high. Tomorrow Nasdaq will release the latest short interest stats through end of March, we'll see if there is any material change. The more interesting stats won't be released until 4/24 which will include data through mid-April including the 4/1 "gap open" which may have involved some short covering. Not sure why they can't report this daily...

 

[MikeL]

I see. My response was my general theory about this one individual, luvb2b's suspect. Other than pure gambling, I don't get the short interest either, but then I'm not really much of an investor (in stock(s)) or a gambler. I just want to own a piece of Tesla, oh, and a Model X!

 

[Nicu.Mihalache]

Not sure why they can't report this daily...

There is some kind of daily info about shorting here
April 2013 Reg SHO Daily Files
But it's not about the short interest, just the short activity during the day. And only on two exchanges, so lots of transactions are not included. I have even charted that data at some time, but could not detect clear patterns (if anyone is interested, I can collect data automatically for long periods of time). Usually the short activity is 33-50% of the transactions.

 

[Norbert]

There is some kind of daily info about shorting here
April 2013 Reg SHO Daily Files
But it's not about the short interest, just the short activity during the day. And only on two exchanges, so lots of transactions are not included. I have even charted that data at some time, but could not detect clear patterns (if anyone is interested, I can collect data automatically for long periods of time). Usually the short activity is 33-50% of the transactions.

Is "short volume" the number of new shorts in that day, or new-shorts + covered-shorts ?

(I guess new-shorts minus covered-shorts would be interesting, being negative when more cover than are new, but that's probably not what that number means.)

 

[Nicu.Mihalache]

Is "short volume" the number of new shorts in that day, or new-shorts + covered-shorts ?

(I guess new-shorts minus covered-shorts would be interesting, being negative when more cover than are new, but that's probably not what that number means.)

No, it's total short activity - it's never negative. That's why it is not so interesting, you could not add it up in any way to guess the present short interest.

 

[luvb2b]

today is tuesday. more of these trades happen on tuedays vs any other day.

as usual i will look for the volume in deep in the money trikes around mid day.

 

[luvb2b]

He's Back. He's Bad. And He's BIG.

i have been informed that now there is an investigation ongoing on these trades. meanwhile this morning's selloff appears to be largely this crooked trader.

note the prints so far. total volume in tesla is only 563,000 shares, which means virtually the entire day's selling is accounted for by these suspicious options trades. as usual all trades going off on the psx. note the open interest (oi), which is too small for it to be closing of positions.

apr 33 calls qty 200: [email protected] / [email protected] - times 10:15 est oi 76
apr 34 calls qty 200: [email protected] / [email protected] - times 10:15 est oi 76
apr 35 calls qty 310: [email protected] / [email protected] - times 10:15 est oi 154
apr 36 calls qty 250: [email protected] / [email protected] - times 10:16 est oi 112
apr 37 calls qty 700: [email protected] / [email protected] - times 10:17 est oi 341
may 35 calls qty 1100: [email protected] / [email protected] - times 10:17 est oi 529
may 33 calls qty 250: [email protected] / [email protected] - times 10:17 est oi 117
jun 25 calls qty 1100: [email protected] / [email protected] - times 10:18 est oi 1100
jun 32 calls qty 700: [email protected] / [email protected] - times 10:18 est oi 341
jun 33 calls qty 700: [email protected] / [email protected] - times 10:19 est oi 333

total volume thus far in these options is 5,510 contracts, which is more than 90% of today's volume.

this guy is having significant market impact.

 

[Johan]

Yes at times down 2.5%. That's real impact.