Tesla Incâ€™s (TSLA) stock price rallied over 20% in aftermarket trading yesterday and the rally has carried forward to todayâ€™s open. TSLA is up 16.5% in mid-morning trading and short sellers are, as Elon Musk stated earlier in the year, â€śfeeling the burn.â€ť TSLA short interest is $8.31 billion; 32.62 million shares shorted; 23.13% of its float; 0.58% stock borrow fee. TSLA is the second largest short in the U.S. equity market behind Apple Inc (AAPL) with $10.47 billion of short interest.
Prior to todayâ€™s price move TSLA short sellers were up +$2.00 billion in mark-to-market profits, this is down from its year-to-date P\L high of +$5.16 billion of mark-to-market profits before TSLA began its sustained rally in June. With TSLA up almost 17% this morning, TSLA shorts are down -$1.36 billion in mark-to-market losses, wiping out almost 70% of their year-to-date profits.
TSLA shorts have been reducing their positions since June and covering more aggressively over the last month. Shares shorted have decreased by -5.12 million shares, -13.6% of their total shares shorted, as TSLAâ€™s stock price rose +5.58% over the last 30 days. Just this week, prior to its earnings announcement, TSLA shorts covered -1.53 million shares of their total shares shorted, -4.48%, even though TSLAâ€™s stock price had dipped -1.95% to realize some of their year-to-date mark-to-market profits.
Shorts were reducing their exposure in the event of a strong earnings report, but $8.3 billion of shorts held onto their positions and took a major hit to their bottom line
We are expecting more short covering and the continuation of this long-term short squeeze as TSLAâ€™s stock price continues to show strength. While longer term TSLA shorts may not feel this squeeze, shorter term shorts certainly are feeling the squeeze and buying to cover. TSLA shorts may, in reality, be truly bifurcated: the older shorts with much more conviction and staying power and the newer shorts who are more momentum based, more willing to exit a losing position. While the first group is relatively short squeeze impervious, the second group is much more susceptible to stock price based buying and selling.
If TSLAâ€™s stock price continues to climb we expect continued short covering to give the stock a short squeeze tailwind. If TSLAâ€™s stock price surge pushes the stock steadily into the $300 range we should see shares shorted fall below the 30 million share level. That would be over 2.6 million shares of buying from the short side helping push TSLAâ€™s stock price further into short squeeze territory.
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Managing Director Predictive Analytics, S3 Partners, LLC
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