I've read that "Big" shorts on Tesla are hedged with covered calls. Basically they can loose money on the stock but their calls are make money. This can only go on so long given eventually the calls expire and they have to sell/exercise them, thus their short position is no longer effectively hedged. The Seeking Alfa article points out this may cause shorts to hold longer then normal given they are hedged.
Doing a quick evaluation there are
3.5 million shares - May Calls
3.0 million shares - June Calls
0.8 million shares - Sept Calls
3.4 million shares - Jan 14 Calls
0.7 million shares - Jan 15 Calls TOTAL 11.4 Million shares in call options
Is it fair to assume atleast half those calls are held as long call options (ie, FutureCarTesla, Seethelong, myself, etc.) and the others might be shorts using calls to hedge..? Even with that it's only 6.7 million shares hedged.
It my analysis is correct after May/June that would imply 3.25 million shares are NO LONGER hedged..?
Can someone (With a Functioning Brain) tell me if this makes sense? I'm trying to evaluate the "Short" squeeze prospects and wondering when the momment of Capitulation occurs.
Shorts always get squeezed as the price moves up, and the weaker ones and the speculators get taken out. Same thing happens as a stock moves down, the weak longs and the speculators get taken out. So it happens every day and at every price in both directions. Nothing special about TSLA on that count. But one thing that you need to remember is that it is not always the dollar amount at risk or the absolute amount of the loss. There are always portfolio considerations as well. A .5% position in a portfolio doesn't need to be hedged on its own. So I wouldn't assume anything about the call position and the "big" shorts. You would have to see their total portfolio.
I agree with comments and accept that a 0.5% position can be held a long time. I guess what I was hinting at is this notion Short positions are hedged with covered calls as I've read a few articles suggesting. I'm not buying that theory. I totally agree it may not be a big deal to some hedge funds to hold there short position a loooong time, but at some point they have to "Clean House" dump positions that are far behind and appear they misjudged.
Is Tesla in that category..? I don't know, but it feels as if Shorts thought they would go bust in a hurry. If Q1 is decent and Q2 looks good as well, you won't convince me that Shorts planned on holding into 2014 on hopes Tesla goes south next year. I'm pretty confident shorts thought this would be easy 2013 money.
I concede things can turn south in a hurry, but no short can explain why a company about to go bust would order more parts from suppliers (ie. 650 Frunks per week)...?
I will be fascinated to see what the short interest is in a few days.
from seeking alpha:
by Forward Looking Guru
Tesla Motors (TSLA) shares have rallied 41 percent year to date, and I suspect the stock has much further to run before being "overbought." If in 2013, Tesla can report the $418 million in profit that I arrived at in my article Tesla Model S Owners Could Realize Amazing Savings, my optimistic price target of $144 could possibly happen in the near-mid term. If investors are willing to "price in" the future, Tesla's stock could continue its current bullish trend, and potentially reach this target sooner than anyone is expecting
Sentiment: Strong Buy
My understanding is that the shorts such as TSLA are usually held by hedge funds as part of a big short bucket. TSLA itself would be a tiny %. Then they would go long some "solid" stock like F, GM, etc or some kind of index, etc. Make is on the spread. Unfortunately, hedge funds have been doing poorly. Most of them are run by bean counters who just look at numbers - in the case of TSLA, they have been ugly. I kind of doubt many drove the car or toured the factory.
In my opinion, it does make sense going short TSLA and then pay a fortune for calls of any meaningful duration. What would have make sense would have been to write covered calls and covered puts.
After making just about every mistake in investing, I keep it simple and stupid. In the risk category, I pick a bunch of stocks that have potential, then observe. Dump the losers and feed the winners. Try not to have hubris and do the right thing in life. Sooner than later, we all will be dead only our good deeds will remain, I hope.
I can only tell you that many many of those put-calls are straddle bets, not short hedgies. I think a real short squeeze is still possible but would take some sort of black swan event. I wouldn't bet on it, but I'd certainly welcome it. I still think the best thing here is long term prospects.