Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[FrankSG]

I'm now wondering if the process of establishing share owners on the 24th has the potential to "bell the cat" on naked short selling.

If Tesla has any official communication with "owners of record", or if "owners of record" have any way of checking the record, that potential exists.

To avoid errors and ensure a tidy process, some way of confirming the record is true and correct would not be a surprise.

Now consider 2 scenarios:-

1) Owner A has a share which is loaned to a short seller and sold to owner B. IMO owner B is the "owner of record"

2) Owner C buys a share which is a naked short and subject to fail to deliver - there is no "owner of record" but owner C thinks they are an "owner of record".

This all hinges on some ability for owner C to check the record on the 24th.

If this scenario exists, MM want to unwind all naked sorts before the 24th, or embarrassing questions might be asked, and lawsuits may even follow.

The cost common use of Naked Shorts by MM would be to manipulate the market on options expiry normally the would want to unwind that position in the next few days to reload before the next options expiry. But if the Tesla share price remains high, MM being stuck with more Naked Shorts on the books than they would ideally like, is possible.

All along I've had hunch Dodger is right, and the market action seems to be confirming it, if my assumption about owner C being able to check the record is correct, this is a plausible explanation..

I'm leaning more and more towards @Artful Dodger being wrong. Not about the practice of naked shorting, but about them getting screwed over by the split.

First of all, I think it's more useful to think of large entities like brokers who don't own the shares themselves, but have clients whom own the shares.

In your first scenario, the broker of owner A knows that owner A does not own any real shares, and will not report these shares for the purpose of getting a 4 share dividend. The debt, whether it be to a different client of the broker or to a client at another broker, will simply be updated from 1 share @ $1,500 to 5 shares @ $300. Nothing will change for regular shorts.

In your second scenario, I believe that this scenario can only be in play for a limited amount of time, because the sale of a share has to eventually be delivered by the seller, regardless of whether the seller is a long, short, or naked short. If it's not delivered within 3 days, it leads to a FTD (Failed to Deliver). This FTD then has to be resolved by the 4th day in case of a short sale, or if the seller can demonstrate that it's a long sale and has the share(s) on its balance sheet, by the 6th day. This is clearly explained in the SEC's Regulation SHO.

Rule 204 – Close-out Requirement. Rule 204 requires brokers and dealers that are participants of a registered clearing agency[8] to take action to close out failure to deliver positions. Closing out requires the broker or dealer to purchase or borrow securities of like kind and quantity. The participant must close out a failure to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement date, referred to as T+4. If a participant has a failure to deliver that the participant can demonstrate on its books and records resulted from a long sale, or that is attributable to bona fide market making activities, the participant must close out the failure to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date, referred to as T+6.

I think what @Artful Dodger might be suggesting is going on is something like this:

Participants

1. MM A (Market Maker A)
2. MM B
3. Broker

Naked Shorting

1. MM A sells short 100 shares of TSLA to the Broker without first borrowing the shares, this is a naked short.
2. MM A has to deliver these 100 shares to the broker within 3 days, to do so it will ask MM B to naked short 100 shares to him, which MM A can deliver to the broker.
3. MM B and MM A somehow don't have to play by the rules, and even after the trade fails to deliver after 3 days, @Artful Dodger keeps mentioning that market makers have 13 days until they have to report a FTD.
4. On day 12, MM A naked shorts 100 shares back to MM B, so that MM B doesn't have to report those 100 shares that failed to deliver.
5. Then on day 12 of that short, MM B once again naked shorts 100 shares back to MM A, so that MM A doesn't have to report its FTD. This then goes on and on.

Issues

1. I'm skeptical that step #2 works. I'm doubtful that 100 shares that weren't yet delivered to MM A by MM B could be delivered to the broker.
2. I have been unable to find anything on Google about this 13 day FTD reporting requirement, and how market makers don't have to deliver on their trades to each other within 4 days in case of a short sale.

But it's grammar-school easy to imagine a scheme where two market makers collude to evade the 13-day FTD reporting requirements:

• Broker 'A' sells naked shorts on Day 1
• by Day 12, Broker 'A' has still not located shares
• instead of covering, Broker 'A' buys more shorts from Broker 'B'
• after a while Brokers 'A' and 'B' are routinely swapping naked shorts
  
• the 13 day reporting clock is reset indefinitely, thus the rule is nullified

This explanation seems overly simplistic to me. There has to be a buyer of the naked shorts, and I don't see how they could circumvent the rule that a short, be it naked or not, not delivered upon within 3 days will result in a FTD, and will then have to be delivered by the next day (4th day after trade took place). Unless the buyer is 'in on it', I can't imagine many buyers being okay with the FTD extending for 12 days to 15 days (3 weeks) after the original sale took place.

So, how does a 'Stock Dividend' break up such a scam? Although any MM who has a large, unreported backlog of synthetic shares created to support their own proprietary trading (with the express goal of depressing the SP), they CAN NOT use their market maker's exemption to create new shares (they only have the right to borrow shares 'in the blind' with the understanding that they will eventually locate them).

This will not be the case after a 5:1 split. With 12 million shares sold short (as of July 31st), after the split their will be a need to identify 48 million new shares to attach to the existing shorts. This is an accounting problem of enormous magnitude for Broker's that have outstanding FTDs on their books.

These 2 paragraphs seem to contradict each other to me. If market makers cannot use their exemption to create new shares (which I agree with), then they can never deliver a share to a buyer in the first place. It'll always be an "I owe you this share", which will turn into an "I owe you 5 shares" after the split. So rather than having to locate 1 share @ $1,500, the naked short will have to locate 5 shares @ $300.

Bottom line is that these are the only types of positions:

1. A long that owns real shares
2. A long that is owed shares by a short
3. A short that owes shares to a long
4. A long that is waiting for his transaction to settle and is owed a share by a long/short/naked short. There's a contract to execute this trade for a set price, but the share still has to be delivered.
5. A long/short that has to settle a transaction. A long owns a share, a short has borrowed a share, either way they have to deliver this share to the buyer.
6. A naked short that has to settle a transaction. He hasn't located the share yet, but he has to within 3 or an FTD will trigger, giving him 1 additional day to deliver on the transaction.

#1 and #5 will receive 4 shares from Tesla.

#2, #3, #4, and #6 are simply debts that will change from 1 share @ $1,500 to 5 shares @ $300.

If I am missing something, and naked shorts are able to fraud their way around some of this, I'd love a detailed explanation of exactly how they are able to. As is, I don't see how naked shorts are screwed over by the 5-to-1 dividend split.

 

[FrankSG]

Subject: LEAPs: Are you taking insurance and/or making income through diagonal spreads?

SP & Date combination you are inclined to act on those LEAPs?

• It likely is the case that there's a share price, at a given date where you are willing to part with your LEAPs.
• This could be converting your LEAPs into shares.
• That can be done by writing a call at a little higher strike price for the same expiry, or perhaps by exercising the LEAPs, or outright selling the LEAPs.

Making a play on such thresholds?

• Are you guys using such price and time points to make some money, or you can see that as buying some insurance, by selling calls at such strike and dates? A relatively much more near dated LEAPs with much higher strikes than the principal LEAPs are good candidates to sell.
• Might not be a lot of money, but can be relatively significant when the stock goes down.
• And given LEAPs are relatively longer term, there almost always will be times when the stock goes down non-insignificantly. In such cases, it's the near dated calls with higher strikes that drop much more than the actual LEAPs you are holding.

@FrankSG IIRC as a reply to the price where each of us would like to part with the shares, you said that if SP reaches $2500 within a few weeks from now, you would be converting the LEAPs to shares. Have you been selling diagonal calls accordingly, or considered those? Perhaps Sep-18: $2500, or Jan-2021 $3500 C, just to give some examples.

@Lycanthrope ?

1. Doing this now would limit my upside from now until the SP hits $2,500.
2. Doing this when the SP hits $2,500 instead of simply selling my options and buying shares, would limit my upside if the SP runs up further.

For now I still plan to hold my options until $2,500, give or take a few hundred dollars, and then convert most, if not all, of my options to common stock. Perhaps selling cash covered PUTs with a small portion at some point.

My plan could be different tomorrow or next week though.

 

[MC3OZ]

MM A sells short 100 shares of TSLA to the Broker without first borrowing the shares, this is a naked short.

It is is a computerized share trading system. they can't specifically trade with each other, unless they report an off-market trade.

I'm not sure the off-market trade will move the market in the way they want.

 

[MC3OZ]

If I am missing something, and naked shorts are able to fraud their way around some of this, I'd love a detailed explanation of exactly how they are able to. As is, I don't see how naked shorts are screwed over by the 5-to-1 dividend split.

IMO the impact is that 24 August is a hard date by which they need to achieve 5#, 6#, the only way (I can see) to do that is buy in the market.

 

[UnknownSoldier]

Happy New ATH Friday, guys!

 

[scaesare]

I need TSLA to keep going up. I love brewing but it's hard to find time with my stupid day job in the way. Ok, it's not that bad, I'm very lucky. Stable (the job not me), well paid, low stress, and I like it at least half of the time.

Yeah, it does require setting aside the better part of a day, but good excuse to get together with my buddies and drink beer while we brew beer. And a when we do 20-30 gals at a time at least it lasts a little while...

 

[FrankSG]

It is is a computerized share trading system. they can't specifically trade with each other, unless they report an off-market trade.

I'm not sure the off-market trade will move the market in the way they want.

These are just to avoid a 13 day FTD reporting rule according to @Artful Dodger . I have not been able to confirm the existence of this rule.

IMO the impact is that 24 August is a hard date by which they need to achieve 5#, 6#, the only way (I can see) to do that is buy in the market.

I don't think that's what @Artful Dodger was talking about in his original post. And I don't see why the "record date" of the stock split would impact by which day stock sales need to be settled.

 

[Prunesquallor]

Time to create Musk Future Industries Ltd.
Use the proceeds to buy an island resort near the equator as its own country and use that for launching.

 

[oldTAVguy]

I'm a union member and the majority of unions are dedicated to improving the livelihoods of working class people.

But the UAW just pisses me off. They give unions a bad name and make it easy for the capital owning classes to demonize unions and slowly destroy them. The US has the weakest social safety net in the developed world and the worst workers rights and also the least number of working class people unionized. This is NOT coincidence.

Please list all countries that you consider are the developed world?

 

[ByeByeJohnny]

When even the smartest folks here, with a personal financial interest in the matter, can't agree or figure out how this works it does seem a little suspicious in itself.

Almost like 'they' are trying to make it difficult to know what's going on.

 

[evermore]

Those of you with high price GTC sell orders to stop the shares from being lent out:

1) What price did you choose? LIkes $5,000? More/less?
2) ETrade doesn't do forever GTC. 30 or 90 days are default, but I can set something a year or more out. Thoughts?
3) Is this really worth the bother?

TIA!

My experience is with Schwab:

1) $10,000. I gather not all brokerages allow such high orders, but Schwab doesn't seem to have a problem with it.
2) Schwab has a time limit, but I look at that as a plus; I don't want to forget to raise it.
3) I thought a lot about this one. I am not positive whether placing this order is sufficient to prevent lending in Schwab. I believe it varies by broker, and I didn't feel entirely confident I could get an answer about this, and even if I did, whether I would really believe it. What I did find though, is that Schwab's account agreement for margin accounts has language indicating that I permit lending of shares held in the account. Their cash account agreement lacks any mention of lending. It turns out you can open as many accounts as you want with Schwab with just a few clicks. So I opened a cash account and journaled the shares over to it.

Then I put in the GTC order too. Belt and suspenders.

At some point I'll probably move them back in to the margin account so I can sell covered calls. But not any time soon.

 

[Jack6591]

Moorpark? Ventura?
Carpenteria?

Fallbrook.

 

[M|S|M MYP]

Been time for a long time but you need to be an accredited investor and I seriously doubt if I'll ever be qualified. Wonder if ARK (or someone similar) would/could put it in a space fund? I'd put money in that if I could!

FWIW....GOOGL does own 10% of Space X. I purchase GOOGL shares on the dips as well as Baron's BPTIX fund to get some exposure to SpaceX.

 

[Oil4AsphaultOnly]

Dear Elon.

Raise fund and buy SpaceX

Please.

That would risk putting SpaceX under too much public scrutiny. Leave SpaceX alone so that we at least have a chance at reaching Mars within Elon's lifetime.

 

[M|S|M MYP]

Internet does not forget:

 

[Sudre]

I think that you have it backwards. Tesla shareholders sued because they thought acquiring Solar City hurt Tesla. Which it sort of did. Tesla gutted it and even used the engineers to help solve the Model 3 problems. It all worked out in the end but things might have worked out better had they been left separate. (And Elon even admitted that in hind sight he probably should have left Solar City alone.)

Name ANY solar company that has a x7 increase in share price in 4 years.
Name ANY auto company that has a x7 increase in share price in 4 years.
Name ANY battery company that has a x7 increase in share price in 4 years.

It is not possible to have done better. Any suggestion or guess work as to the what ifs can not be proven in court. I would argue that without those Solar City engineers Tesla would have gone bankrupt. Conjecture works both ways. Then the worth is exactly what those Union plaintiffs wanted it to be. ZERO, and they would have won their real position.

In 5 years we will most likely be at a 10x return.

 

[Tes La Ferrari]

View attachment 576422
Not sure if anyone has mentioned or noticed this yet but Elon changed his Twitter picture. Could this possibly be a sign of things to come...battery day??

If you look closely; Elon’s baby is in the backseat holding a S&Poon.

 

[dm28997]

The Baron Partners Fund and Baron Focused Growth Fund own some SpaceX shares. Those are funds in the group headed by Ron Baron who is a big fan and investor of Tesla.

Also some Fidelity funds own some SpaceX.

Which Fidelity funds own SpaceX? Thanks Mike

 

[PeterJA]

SDG&E cutting power to parts of San Diego County due to heat wave

[San Diego Gas and Electric] cut the power to large areas of San Diego County and southern Orange County on Friday night to cope with a surge in electricity demand brought by the start of a heat wave that will last well into next week.

“The California Independent System Operator, which oversees the statewide electric grid, has directed SDG&E to initiate rotating, one-hour service interruptions (rotating outages) through its service territory in San Diego and southern Orange counties,” the utility said.

The first set of outages occurred at 6:40 p.m. and affected 28,000 customers, according to Helen Gao, an SDG&E spokesperson.​

...except customers with Powerwalls.

 

[RobStark]

Ex-Tesla worker agrees to sanctions over document dump

Martin Tripp agrees to pay Tesla $25k in legal fees and STFU.