The Rolling Naked Tesla Short

[luvb2b]

Follow up question: If the basic assumption here is that the two big stooges (who are trading all these deep in-the-money options with eachother every day) are doing this to stay short on TSLA but gradually switching their stock to options to be short on, to avoid lending charges, then at some point they will have exchanged their entire actual stock position to an equivalent, still short, position on a combination of calls and puts right? And there is still no sign of them slowing down the pace which must mean that they had a very large short position in actual TSLA stock to begin with? Now, they are trading in big volumes in the may calls. So in effect unless TSLA drops significantly in time for the may options expiration they will be sitting on a lot of worthless calls? My point being they are staying short only on option instead of stock (thereby avoiding high lending charge rates). But unless TSLA pulls back quite a lot they will be sitting with quite some losses come may?

the most likely candidates for the stooges are either shorts who can save borrowing charges or a larger player who can lend the shares and just earn yield from the long stock short call package.

regarding what happens to the calls, actually if you follow the open interest carefully what you'll see is those deep in the money calls are getting exercised away from them as the days go by. in some cases many got exercised away from them just 2 or 3 days later. but larry & moe don't care, by doing the trades on tuesday they guarantee the trades settle friday and that they can earn at least the 3 nights of weekend lending interest before anyone can exercise their position away.

as they get closer to expiration, they aren't sitting on worthless calls. they are sitting on deep in the money calls. those calls get exercised and converted to short shares. so if the stooge is a short, he's back to being short, and if the stooge is a lender doing a yield trade, his long stock offsets the call exercise.

if the stooges are shorts, they're getting killed anyway. they just save a couple bucks not having to pay 40%+ interest to borrow shares.

hope that makes sense.

 

[Johan]

if the stooges are shorts, they're getting killed anyway. they just save a couple bucks not having to pay 40%+ interest to borrow shares.

hope that makes sense.

Yes, it makes sense, thanks. The important thing that I just wanted to make sure is your sentence that I have bolded out above. Go TSLA! :biggrin:

 

[kenliles]

But they're getting killed less dead than most shorts by avoiding some of the carry interest. I suspect it's a combination play from an extreme short position. They pay less to stay short on the converted calls to short, and they keep the long dated dated calls in place as a hedge to reduce some of their over-short position.

 

[Causalien]

If they are short, the volume should be reducing as their margin gets reduced along the way. Is that the case!

 

[kenliles]

If they are short, the volume should be reducing as their margin gets reduced along the way. Is that the case!

no- doesn't appear to be the case on the surface. But these are big players; hard to tell where they are relative to margin.

 

[luvb2b]

If they are short, the volume should be reducing as their margin gets reduced along the way. Is that the case!

nope, the volume is a function of how much of the market makers/buy-writers position they can "steal". the most they can steal is the total open interest at any strike, and even if they do 4-5 times as much volume as the open interest, the end result only nets them about 80-85% of the open interest. so what i'm saying is that it takes a lot of volume to steal a few contracts.

- - - Updated - - -

so 45,000 contracts traded yesterday representing 4.5 million shares of open interest. does anyone even really question that the contracts vanished any more?

here's the updated open interest, as usual down at every strike!

may 35 call vol 2,854 oi 427 --> today's oi 427
may 39 call vol 1,416 oi 208 --> today's oi 82
may 40 call vol 6,000 oi 1,486 --> today's oi 1,238
may 41 call vol 2,000 oi 535 --> today's oi 509
may 42 call vol 3,600 oi 860 --> today's oi 845
jun 32 call vol 1,736 oi 268 --> today's oi 218
jun 33 call vol 2,008 oi 304 --> today's oi 294
jun 34 call vol 1,102 oi 151 --> today's oi 50
jun 35 call vol 3,550 oi 575 --> today's oi 544
jun 36 call vol 2,878 oi 489 --> today's oi 489
jun 37 call vol 2,020 oi 310 --> today's oi 305
jun 38 call vol 5,956 oi 979 --> today's oi 627
jun 39 call vol 2,800 oi 675 --> today's oi 605
jun 40 call vol 2,000 oi 8,947 --> today's oi 8847
jan 30 call vol 2,800 oi 676 --> today's oi 641

i'm wondering if i really need to pursue this any further? by now pretty much everyone should understand what's going on. perhaps someone else would care to do the predictions and outcomes for next week?

i contacted the regulator again, but they won't comment on the situation (which is typical). the last i know it did get referred up to a higher agency but no idea what else may come of it.

 

[Zzzz...]

She notices Tuesday unusual volume. But did not check details and history of this thing, I mean the fact that it is usual thing for TSLA on Tuesdays...

Are Tesla Motors Inc (TSLA) Bears Buying Options Insurance? | Daily Option Blog | Schaeffer's Investment Research

 

[luvb2b]

like most people she's clueless to what's going on here. sometimes i wish it got more attention, so at least we could find out if it's legal to trade like this.

 

[imherkimer]

one or all of these stooges must come out of a whale that's too big to fail.
Because if the regulator investigated and prosecuted this sort of thing, he would say, if forced to answer the question:
"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them..SOURCE: THE NEW REPUBLIC 2013-04-18 14:53:00

 

[DonPedro]

like most people she's clueless to what's going on here. sometimes i wish it got more attention, so at least we could find out if it's legal to trade like this.

Why don't you tip her off? She seems very interested in reporting what is going on, and this would make a better story than the last 2-3 she's run.

 

[Lloyd]

http://www.schaeffersresearch.com/marketcenters/optionscenter/content/are+tesla+motors+inc+tsla+bears+buying+options+insurance/default.aspx?ID=115764

Article summarizing what this thread has found.

 

[DonPedro]

http://www.schaeffersresearch.com/m...ying+options+insurance/default.aspx?ID=115764

Article summarizing what this thread has found.

No.

 

[luvb2b]

Why don't you tip her off? She seems very interested in reporting what is going on, and this would make a better story than the last 2-3 she's run.

ever talked to a reporter donpedro? it's no wonder that news stories generally mark the end of a move. they are generally so clueless as a bunch it's a miracle that any original investigative reporting ever gets done.

my first experience with this was back in 2004 when i had discovered evidence of ridiculous risk taking behavior at freddie mac & fannie mae. freddie had an accounting scandal back then, but you know what? after speaking to reporters from every major financial publication, none decided to go with it. a wall street journal editor told me that after he ran the story by several institutional contacts (who obviously would never want such a story public) the contacts told him that sure, there were shady things happening at fannie and freddie but it didn't matter because they were so big the government would bail them out.

i've had multiple other similar experiences since then, and therefore came to the conclusion that talking to the press is a waste of time. maybe if i was managing money or somehow the publicity mattered, it would be worth it to deal with these jokers.

as it is, it's not worth it all!

 

[DonPedro]

I deal with reporters from time to time in my day job, and my experiences are not so bad.

 

[Ocelot]

they are generally so clueless as a bunch it's a miracle that any original investigative reporting ever gets done.

..a bit off topic here, but the only "real" investigative journalism I read these days come from Rolling Stone magazine. Seriously pick up an issue. Nearly every issue has a great informative, well-researched piece. Here are some recent ones I have 'enjoyed'...

http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214

http://www.rollingstone.com/culture/news/the-brilliant-life-and-tragic-death-of-aaron-swartz-20130215

global warming..therefore tesla related....

http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719?link=mostpopular4



an informative older one..
http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314

 

[luvb2b]

..a bit off topic here, but the only "real" investigative journalism I read these days come from Rolling Stone magazine.

+1 to rolling stone. an exceptional publication.

 

[Thumper]

Mother Jones and Harpers also do real journalism.

 

[imherkimer]

+1 Rolling Stone Matt Taibbi is one of the best investigative journalists I have ever read. Really gets to the core.
"Griftopia" recommended great book!

 

[kenliles]

'there were shady things happening at fannie and freddie but it didn't matter because they were so big the government would bail them out.'

well they got that part right

 

[Elshout]

Shorts are really getting squeezed, TSLA up $3.43 at 1:03 EDT!