TSLA Market Action: 2018 Investor Roundtable

[MarcusMaximus]

I agree with this. Tell me all of you TSLA bulls, hand over heart, is $420 what you were waiting for? This is like an easy escape for the shorts. Something is definitely fishy, it doesn't add up.

No, which is why I won’t be selling at $420. Either the shorts get squeezed enough to give me 10x gains or I take private stock. Happy either way.

 

[defc0n]

I still don’t understand how there could be a short squeeze from this. We have a known price point that Tesla may be sold at— it seems it shouldn’t go above that price point, since the market now knows what Tesla is worth? Is it worth the risk of holding shares at a price point higher than the private purchase price?

Assuming the deal doesn’t go through, also seems like it wouldn’t make sense for it to be worth more than $420 thereafter and could drop quickly below that.

 

[neroden]

Well, that would be a feasible scenario if we would have no shorts at all that are forced to cover. With them forced to do exactly that we are in a situation where they have to cover at every price with limited share supply. Right now it looks like some even adding which should fuel a short burn even higher.

We will be in an irrational situation here where Elon and his consortium will pay only $420 for people who want to cash out where shorts are forced to pay high(er) prices still sitting on losses and need to give the stocks back. If the SP then spikes significantly over $420 the "going private attempt" gets less likely.

At that stage the situation does change again. Being far beyond $420 and shorts almost out would create the question what happens next. If the deal does not happen I would assume new shorts getting in again as they consider the SP overvalued big time. Old short have lost billions so even if they survive its hard to say if they go in again but new shorts will.

If the stock flies through $420 due to a short squeeze, or due to Q3 earnings, or whatever, I expect the buyout price to be raised. I don't know how high the stock price would have to go before Musk would call off the go-private deal.

I actually wouldn't be surprised if, in the situation where the price rises well past $420, his investors made a formal tender offer at a price like $420 and just left it in place, putting a floor on the stock price; I believe that's legal. That would also allow them to go private in the situation where the stock price spikes due to short covering but promptly drops back down again.

Just my thoughts and honestly I have not experienced a situation like that before and maybe wrong. Pretty irrational situation and hard to say what will finally happen.

 

[Todd Burch]

I agree with this. Tell me all of you TSLA bulls, hand over heart, is $420 what you were waiting for? This is like an easy escape for the shorts. Something is definitely fishy, it doesn't add up.

In the words of Macklemore and his good friend Sir Ryan Lewis, "It's a damn good place to start".

 

[ggr]

Does this mean profitability won’t happen starting in Q3 as Elon promised? I don’t see the point of this all of sudden if Tesla can actually start delivering profitability and have the shares skyrocket much higher than $420. I’m a long time bull btw.

The point? It makes managing the company for long term goals easier, and they get to keep more of the money because they (we) won't have to fight the trolls pulling the stock price down.

 

[AudubonB]

Moderator Hat is ON:

First of all, ¡What a day!

Congratulations to all longs, and best wishes for those of you with derivatives - hope it works out for you. And best wishes for those of you with shares held by foreign custodians; I think I can speak for all concerned that we hope you are able to be treated as well as how those of us in the US think we will be.

SECOND: There is as of end-of-day Tuesday a lot of uncertainty wrt many, many aspects. PLEASE READ EVERYTHING in this forum and in other venues with the utmost care. There is much, much misinformation; mal-presented information; guesswork put forth as hard fact....and possibly, as has happened once or twice in the past????....F.U.&D.

LASTLY: There is no need now - as there never has been - for gloating, rubbing salt in wounds or other such unbecoming words or deeds. Certain people will be hurt; prisoners will be taken. Hahahahahahaaahaaaaaheeeheeheeeee. Ahem. Where was I?

Onwards and Upwards! Excelsior!

 

[mongo]

Trying to get a grip on what's going on here.

100% of my TSLA investment is in common stock. Long term I intend to keep it all in TSLA (or private Tesla?) for quite awhile.

Suppose over the next days the price spikes like the VW squeeze--let's say $1,000/share for the purpose of argument, due to short covering, then starts dropping quickly back toward the $420 level. Would it be a good idea to sell at the peak of that spike, wait for the price to come back down, buy back in, then let my shares go private? Or would it be better to just hold for some reason?

Timing the spike would mean short-term capital gains for me, but the potential spike would greatly overcome the additional tax.

Could use some basic explanation on the possibilities of what's likely to happen here, and what would be good strategies in various scenarios.

You are risking that someone will sell to you on the way down...

I still don’t understand how there could be a short squeeze from this.

Shorts get margin called, that places market buy orders at whatever ask price is next. Stock holders can place 1k sell orders knowing that they'll get at least $420.

 

[Boomer19]

Well today was a bad day to be away from information.

Trying to digest it all.

As a peraon who is all in....I am feeling somewhat dejected.

1. Seems all my Leaps above 420 will go to zero?

2. All of my holdings are in a canadian RRSP. Essentially a tax free retirement account until you withdraw the money. Tsla was my 10-15 year retirement plan. So know to keep my shares i would have to sell....take money out of account, get taxed 50 per cent and rebuy my position. Essentially losing half my shares. I do not have funds outisde this account to buy tsla. I hope i am misreading this...and please if someone has advice, i would appreciate it.

First lost out on short term calls after Elons squeeze tweet, and now on long term calls. Cant seem to win.

the premiums on OTM calls dropped but then regained momentum after the halt. i’d stay on top of it but not be too patient. and look at possible strategies to get out of he deep OTM and cycle back into reasonable strikes or shares

 

[neroden]

For people with the ability to trade stock in their 401k, how would you move money from the 401k to this private equity fund work? Would you incur taxes and penalties?

Odds are 401(k) holders will be out of luck and will get cashed out. :-( 401(k)s can be ridiculously restrictive on what you can invest in, and private equity is super unlikely to be allowed, and the private equity fund probably wouldn't be allowed either.

Apparently those of us with IRAs have a chance though. I will have to research self-directed IRAs...

Maybe you could roll your 401(k) shares into an IRA if that's allowed for you?

 

[neroden]

I still don’t understand how there could be a short squeeze from this. We have a known price point that Tesla may be sold at— it seems it shouldn’t go above that price point,

Backwards. If there's a bid at $420 for the entire market cap, think about it... it sets a price FLOOR.

This is assuming people believe the deal will go through (i.e. financing, legal approvals, voting), which obviously not everyone believes yet.

 

[hacer]

I don’t think a big short squeeze is likely if the private sale does go trough at $420. The reason is that any longs who were planning to get out at $420 when the sale goes through will definitely be happy to sell to shorts at any premium above $420 to gain some extra profit.

So all it would take is as many or more longs looking to sell out at $420 as shorts looking to cover to prevent a major squeeze. I imagine that with all the ETFs and large institutional investors who want/have to sell TSLA before it goes private (and some retail holders too of course), that this would likely be the case.

Thus we would definitely see price action above $420 but I imagine that anytime it gets above $420 by a certain amount there would be lots of longs looking to cask out for extra profit. So maybe it gets into the $430s/440s but probably not much beyond that IMO.

The difference is that the longs know that shorts have no choice but to buy. The shorts can only guess at what the longs are thinking/will do.It makes complete sense for everybody presently long, to not sell anything except at ridiculously high prices. If most folks do that, the shorts will be forced to pay the ridiculously high price. Once it starts climbing as weak longs are taken out in the mid $400's the margins calls with rain down and there can be a fantastic spike. It happened with VW when everybody in the market knew in advance that the shorts had no choice but to buy, the longs acted accordingly. It should go the same here. We know that they must buy so don't sell for anything near $420.

 

[Fact Checking]

Regarding the spike. In a typical squeeze, the sellers expect to pick up shares on the downside. And some non-shorts trade on the up side. In this situation, the only people buying above 420 will be shorts. The stock has never been that high, so there will be no one with a vested position to keep the price above 420 once the shorts are covered. Tesla fans will already have their positions. So the ticker will say: Ask of 3k, bid of 419.99 and volume of zero.

Why would bid stay at $419.99? As long as not all shorts have covered yet, they'll put in their offers as BUY LIMIT orders, which will set the bid to somewhere between $420 and $3k - in the hope of getting a better deal than the current asking price of $3k.

Some stockholders might even decide to take their offer - for example $2,999 doesn't sound bad for a 2018 TSLA price.

As to the dynamics of the short squeeze: I think many longs would wait until significant amount of forced covering has been performed - and it will be easy to estimate how many of the 35 million shares have covered: by looking at the volume over $420. Once post-$420 volume is over say 30 million shares it's time to sell, if the price is right, or if the stockholder is forced to sell due to the public->private buyout.

I.e. this is a trader's nightmare scenario: everyone knows the shorts' exact position size, their exposure, and their transactions. Furthermore there's an obvious prisoner's dilemma between the shorts: the first one to blink gets a much cheaper price to cover. I believe the shorts will be squeezed to the max.

I think the short squeeze might begin the moment the buyout offer is filed with the SEC.

 

[ggr]

Experts Cast Doubt on Musk’s Envisioned Buyout of Tesla

A different extract from the first line of the article:

A number of bankers and private-equity investors privately cast doubt ...

In other words, they weren't going to let themselves be named so that they can't be held responsible.

 

[oneday]

Ever submit an order when your phone said 7:59 only to have the broker tell you it was 8:00?

Regarding the spike. In a typical squeeze, the sellers expect to pick up shares on the downside. And some non-shorts trade on the up side. In this situation, the only people buying above 420 will be shorts. The stock has never been that high, so there will be no one with a vested position to keep the price above 420 once the shorts are covered. Tesla fans will already have their positions. So the ticker will say: Ask of 3k, bid of 419.99 and volume of zero.

I have been wondering about this. And trying to plan a strategy. I know it is definitely still too early to really plan anything since we are lacking so many details. But I have been trying to run a few hypotheticals.

I would like to take advantage of the short squeeze but not miss out on my chance to retain ownership of TSLA/P. If the price runs up due to a squeeze, I’d assume before the closing and execution of the LBO (or whatever it should be called, private buy out?) the price would want to fall back to the target price of the buy out (420?). So in this scenario, I would sell my shares during the squeeze and rebuy them before the buy out, as close to the deadline as possible to take advantage of the market trying to regain equilibrium. In this scenario though, I am sure others would do the same. So this could force the market to actually price the desire to own TSLA/P higher than the target acquisition price. I could imagine a scenario where the price doesn’t actually come back to $420. If this is indeed possible and not a violation of the covenants of said buy out, it could also be possible to sell trying to take advantage of the squeeze and actually still have to buy back in at a higher price.

Is this possible?

Anybody else thought about these kind of scenarios?

Tl;dr: Is it possible that the SP sits above the $420 acquisition price at execution of buy out, because demand is high enough for ownership of TSLA/P? And also not violate covenants of the buy out?
Could the shareholder vote be $420 not dependent on current SP?

 

[Boomer19]

I called Fidelity today and they say it is a private equity fund that is not owned/run by Fidelity and Fidelity can not sell it. They said they have been getting calls all day about it since Elon mentioned it. So does anyone know anything about this SpaceX equity fund? According to Elon it only has a liquidity window every 6 months to buy/sell. But buy from who?

the value of a private company’s equity is usually shared by its owners, early investors, members/employees who have % of ownership as well. they may have windows where they let stakeholders divest, or even invest more. the transactions are offset with the company’s equity value across its ownership.

 

[Richgoogol]

The point? It makes managing the company for long term goals easier, and they get to keep more of the money because they (we) won't have to fight the trolls pulling the stock price down.

I do get this part but the fact that he promised profitability in Q3 onwards which is in merely 3 months time would fight the trolls as well, even in more convincing terms than the buyout. I just do not see why he couldn’t wait 3 more months of volatility and shut the shorts for good with a massive earnings beat. Why such a hurry unless he cannot deliver.

 

[neroden]

Now that the chat has settled a bit, can someone please tell me if this is correct?

If it is correct, I plotted this on an excel spreadsheet to see where the highest profit would be. Since we don't know when the move to privatization would be, I continue to choose J20s options.

if you buy J20 210, the price is 179.98x100. If you are able to exercise the option when the SP is 420, the cost will be

(179.98+210) * 100 = 38,998

The payout will be 42000, meaning a profit of 3002 per call option. Can someone please verify? I'm still upset I was hesitant over the Solar City deal and lost out on a lot of potential money, so I don't want to make the same mistake again.

Your math is right. The big catch is that options often basically stop trading after a merger or buyout becomes the big thing. So you *have to have enough funds or margin capacity to execute the option*; you can't be sure that you'll be able to sell it.

 

[neroden]

Retail investor only though right?

Big funds should be trimming their position consistently to avoid overexposure to black swan events.

Oh, big funds get margin-called too.

 

[Fact Checking]

Backwards. If there's a bid at $420 for the entire market cap, think about it... it sets a price FLOOR.

Indeed, basically Elon's buyout offer is a promise to place a large BUY LIMIT order at $420, for 169,794,000 shares, pending shareholder approval, which any shareholder can make use of if they so decide.

It will not set the bid/ask of the moment - both can (and probably will) be substantially higher at times - but they'll never drop below $420 substantially. (Minus any risk premium of the deal not going through.)

 

[neroden]

In the event that happens and the deal falls apart or shareholders don't vote for it, wouldn't the stock then quickly plummet?

Not after Q3 and/or Q4 results are digested by the market.