Tesla short sellers are down $18 billion this year, including another $4 billion in July
PUBLISHED FRI, JUL 10 202011:39 AM EDT
Thomas Franck
@TOMWFRANCK
KEY POINTS
Investors betting against Tesla have lost $18 billion so far this year, including $4 billion in July with the stock up more than 16%, says S3 Partners.
Forty-three percent of those losses occurred in five weeks of trading with $3.71 billion in mark-to-market losses in June and $4.08 billion in July, the firm found.
Teslas short-interest level (the dollar value of all shares sold short) recently hit $19.95 billion and is poised to be the first stock to hit $20 billion.
Elon Musk, co-founder and chief executive officer of Tesla
Elon Musk, co-founder and chief executive officer of Tesla
Yuriko Nakao | Bloomberg | Getty Images
Investors betting against electric car maker Tesla have lost $18 billion so far this year, including $4 billion in July with the stock up more than 16%.
That analysis, conducted by data-analytics firm S3 Partners, also showed that Teslas short-interest level (the dollar value of all shares sold short) recently hit $19.95 billion and is poised to be the first stock to hit the $20 billion mark.
S3 Partners analysis shows Tesla short are down $18.08 billion in year-to-date, mark-to-market losses. Forty-three percent of those losses occurred in just over five weeks of trading with $3.71 billion in mark-to-market losses in June and $4.08 billion in July, the firm found.
Though betting that a stock will go down always has the potential for big losses, Teslas rally in recent months has proven especially damaging since the name remains the largest short in the U.S. market, according to S3 Partners director Ihor Dusaniwsky.
Teslas stock, which was up 1.1% around 11 oclock Friday morning, is up more than 140% over the last three months and more than 480% over the last year.
Making matters worse for short sellers, the researcher wrote that the stocks recent rally is likely in part thanks to a market phenomenon known as a short squeeze.
Normally when a short seller moves to cover their position by buying back the equity, the sums are so small that it has little to no upward impact on the price of the equity. But when that happens en masse, when scores of short sellers cover at the same time, the trade can drive the share price even higher and exacerbate short losses.
That can lead to cascading waves of covering and, as a result, higher and higher stock prices.
The reason behind Teslas short squeeze is obvious and straight forward, large mark-to-market losses are forcing out some short sellers as they hit their loss limit thresholds, Dusaniwsky wrote. If Teslas stock price continues to trend upward, we expect even more short covering as mark-to-market losses accumulate.
Though Tesla CEO Elon Musk has had less-than-rosy interactions with Wall Streets analysts, even the carmakers sell-side bears agreed this week that its seemed tough to stop the stock.
Both Barclays and Morgan Stanley this week said that the stock is poised for more upside despite their underweight recommendations.
While we still believe TSLA is fundamentally overvalued, we see nothing to prevent the shares moving higher in the coming weeks, Barclays said.
The surge in the companys valuation has been so great that analysts and investors believe the stock is on the verge of being added to the S&P 500 in what would be a major achievement for both Tesla and its unconventional chief executive.
Reuters reported Friday morning that higher-than-expected second-quarter vehicle deliveries have Wall Street increasingly confident the company will post a profit in its quarterly report on July 22. That would market Teslas first cumulative four-quarter profit and pave the way for its addition to the broad market index.
Any stocks addition to the S&P 500 can mean a flood of new demand for the equity since so many exchange-traded funds (at least $4.4 trillion in investment dollars) seek to mimic the performance of the index. Should S&P Dow Jones add Tesla to the S&P 500, those funds would be forced to snap up Tesla shares to avoid errors.
www.cnbc.com/2020/07/10/...ing-another-4-billion-in-july.html