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Tesla Motors, Inc. (TSLA) Message Board

  • ripwinkles ripwinkles Feb 3, 2013 10:19 PM Flag

    Are the shorts unwinding their position?

    If so, we could easily see $40 tomorrow. I invite comments.
    I hope to elaborate more on this starting tomorrow. It's too late here now.

    Rip

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    • Tesla’s net short position increased by 32% during the six consecutive months from May - October 2012, reaching an all time high of 31,121,093 shares.
      It then declined by 16% in the next two and a half months to 26,130,251 shares, a reduction of 4,990,842 shares.
      This raises the question as to whether or not a large number of shorts haven’t thrown in the towel after deciding that they were mistaken for having shorted Tesla and are liquidating their short positions? Think of it, not one investor today, who shorted this stock and stayed with it, has a profit in his short position.

      Up until now most long investors, when looking at the disparately large short position in relationship to the float, have been focusing on the possibility of a short squeeze. A short squeeze occurs when a short position is so large as a percentage of a company’s capitalization and float that it becomes difficult, if not impossible, to borrow. Because shorts must continue to borrow shares in order to maintain their short positions and not be bought in, during a short squeeze they are forced either to cover their short positions or temporarily borrow the shares at a very substantial premium. I believe a short squeeze occurred last November - December, but was averted because the shorts paid large temporary premiums to prevent themselves from being bought in involuntarily.
      Last November I loaned my shares out and received a premium of 28% per annum. That means that investors who were short had to pay me 28% while buying time to repurchase Tesla shares in the market on a more orderly and less costly basis. The fact that the premiums have declined from 28% to their current level around 5%, along with the large corresponding reduction in the short position that I referenced above, suggests that a short squeeze has been averted at this point in time.

      However, I believe it may signal a major shift in the longer term outlook on the part of the shorts, as they watch the company hit the production targets that they thought could never be achieved; come closer to finally delivering on sales and revenue projections; as new institutional investors show a willingness to buy stock at higher price levels to a point where as a group they own almost 69% of the company; and as they get tired of taking continuing losses and have to continue to put up more capital to finance their position.

      So for now I don’t believe that a short squeeze will cause the price of Tesla’s stock to appreciate. Instead, it might be the shorts beginning to realize the company might succeed in reaching its goals, in which case the shorts may be at an enormous risk, not worth taking?
      One thing about Tesla….Its going to be interesting!

      • 3 Replies to ripwinkles
      • Rip:
        I agree with most of what you said with respect to "true" shorts. In my opinion, most of the shorts you are talking about are "institutional." and can stand the pain of waiting for the big payday. The ultimate question is whether TSLA can consistently earn profits. In my opinion (and I suspect Musk’s), that day of reckoning is less than a year away. I also suspect that the institutional shorts think that if Tesla ever does report a profit, the mutual funds will begin to recognize just how over-valued currently the shares really are, so they think the upside risk is far less than the downside reward.

        Most shorts (my preference is "skeptics") who frequent this board are retail players who are short through options--either short calls or long puts. I agree that anyone who has been buying puts is likely under water. Selling short calls has been profitable (at least for me thus far) because of the volatility of the stock. (Roll em, up and out) In my case, I'm not sure if I've been lucky or have intuitively divined the "rhythm" of Musk's hype cycle. I also think that long time skeptics are willing to go “long” in the short term, but few fanboys are willing to come over to the dark side, even if it is only momentarily to pick up some scratch.

        Thanks for your efforts to promote civility and content on this board. I hope your wife is comfortable and doing as best as can be expected.

        Out of curiosity, did you harvest your most recent profits or are you “rolling the dice” through the quarterly report?
        The other Bob

      • kierkenergen_vargenargen kierkenergen_vargenargen Feb 6, 2013 11:53 AM Flag

        Thank you for the interesting post. Congratulations on the superb return.
        I enjoy reading Doug Kass. He gives a thinking view from the bear angle. Kass is a very successful short. He says that successful shorts must do very intensive homework, and resist emotional confirmation of their positions. He also has a general rule that if the short float reflects more than five days to cover, he stays away.
        I am not an experienced stock trader. I only made managed fund investments over the years. My wife and I agreed that we would start purchasing houses in 2009 after the market fell. At the same time I took a course in trading and began individual stock picking and trading. The last four years have been fairly good for almost anyone in both real estate and stocks since the bottoms were so low. I have had no formal finance education, and no college education except those courses I have taken for work. However, I have been in project management since I left the Marine Corps twenty years ago. It is a jack of all trades profession that requires you to learn many things. I learned the hard way how to read financial statements after having suppliers and a partner company fail during a project. One of these indirectly led to termination from a job about seven years ago. So I have gotten fairly good at reading statements.

        I have been tempted to take short positions on many issues, but have not. Tesla has been especially attractive. TSLA is what I call a conundrum stock. Conundrum stocks are those which have awful financial circumstances or otherwise horrible trends, but enjoy huge forgiveness. They may attract shorts because the numbers don’t make sense. But the senseless numbers do not frighten investors who love the idea of the company. Recently I had a happy accident with Amazon that may illustrate the conundrum principle. I bought shares of AMZN after Thanksgiving last year. The charts were very good. Also zero debt, free cash flow 3x net income, practically no inventory, etc. I had just been letting it ride in an undisciplined way. Then the 2012 earnings announcement came last week. I was horrified. The company missed earnings, took on a huge pile of debt, and greatly increased expenses. Even though revenue was up many metrics had turned for the worse. I got caught up in work emergencies, so I couldn’t pay attention to the trade until mid-morning. I was shocked to see it was up almost 6%. If I had been able to see an early release of the report, I would have sold the day before. Because I didn’t understand it, I promptly sold all the shares. This was a very good trade. But it was purely lucky trading, nothing more. I like to profit from trades, of course. But if I don’t understand why then I should not push my luck.

        As I have pointed out, I recently bought some inexpensive out-of-the-money TSLA calls. My strategy was actually poorly conceived, with some stupid basic arithmetic errors. I had seen a chart breakout coming. I also expected some good financial news. Fortunately the trend held true long enough to permit me to walk away to the upside. (As of my posting it’s still going.) This was also purely luck. Currently I think the analyst estimate for losses is short of the real number. I think cash will be surprisingly weak. But the story is so compelling. Also the CEO is an excellent fund-raiser. It is a conundrum that is very risky to play either way.

      • Good assessment RIP, we appreciate your knowledge on short interest, please update us as much as time permits

        Sentiment: Strong Buy

    • kierkenergen_vargenargen kierkenergen_vargenargen Feb 5, 2013 11:44 AM Flag

      ripvanwinkles, you could still be right a couple of days later, but I am having doubts. I have been selling to close 38.00 Feb calls since yesterday. Bought back on 23 Jan for 0.50 (see my post). I see probable retracement before the conference call. Pushing through 28 January intraday looks unlikely for awhile to me. I'll be completely out today.

      I have been thinking a lot about where Q4 results will end up and I'm less optimistic. Still I'd like to understand your view. Thank you.

 
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