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!
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