Tesla Inc (TSLA) stock is down 7% this morning on a slew of new initiatives put out by CEO Elon Musk including a $35,000 Model 3 and closing most of its 100+ dealerships and selling cars solely online. But the most important line in the conference call may have been Musk stating that â€śwe do not expect to be profitable in Q1 â€¦.. profitability in Q2 is likely.â€ť
Tesla short interest is $8.22 billion; 25.69 million shares shorted; 20.30% of its float; and stock borrow costs are 0.30% fee. Tesla recently dropped down to the third largest U.S. domestic equity short behind Apple (AAPL) with $9.63 billion of short interest and Eli Lilly & Co (LLY) at $8.66 billion.
Tesla short interest has been relatively stable in 2019, with shares shorted increasing by only 120k, +0.5%, in the first quarter, but there has been a recent uptick in short selling which has offset early year short covering. Shares shorted have increased by 909k in February, with 162k of shares shorted over the last week. We are seeing some additional short selling today, nothing in the magnitude that would be responsible for todayâ€™s 7% price drop or put a dent in todayâ€™s 14+ million shares traded. With short sellers pretty much standing on the sidelines with a Cheshire cat grin on their faces, it is long shareholder selling that is driving Teslaâ€™s stock price down.
While talk of a Tesla short squeeze is always a topic of conversation for Tesla long shareholders the chance of one occurring in the near future is slim at best. Tesla shorts are up $660 million in mark-to-market profits on todayâ€™s price move, bringing year-to-date mark-to-market profits to +$1.02 billion for the year. Long term Tesla shorts have almost made up the $1.4 billion in mark-to-market losses they incurred in 2018, if they had not covered their shorts during 2018â€™s 4th quarter rally, it is unlikely they will fold during 2019â€™s slide.
Tesla shorts are relatively quiet today, but if its stock price continues to decline there is more than enough cheap stock to borrow to push total shares shorted back to levels we saw in 2018. If short sellers do join in with long shareholder stock selling, Teslaâ€™s stock price may be in for quick and volatile price swings in the short term. Weâ€™re seeing active put and call option activity around the $300 strike level indicating there may be a significant amount of option straddle and strangle vol trading in the name.
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Managing Director Predictive Analytics, S3 Partners, LLC
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