Tesla short sellers have lost $27B betting against Elon Musk this year
$23.4 billion worth of Tesla shares are currently shorted
Short sellers are betting against Alibaba and Apple, too
Electric vehicle kingpin Tesla is still by far the most shorted US-listed stock on the market. S3 Partners calculated there’s $23.4 billion worth of Tesla stock (TSLA) currently shorted, which works out to be nearly 7.5% of the total number of shares in circulation.
Alibaba and Apple are the next most-shorted stocks, with $15 and $10 billion worth of short interest respectively.
The thing is, TSLA has risen more than 400% this year, making it rather difficult to make money by shorting it. S3 Partners’ Ihor Dusaniwsky told Hard Fork that TSLA shorters have lost $27.04 billion in mark-to-market losses in 2020.
However, TSLA short sellers have made $243 million profit in October, a month that has seen the stock sink 10%.
Is there a major Tesla “short squeeze” on its way?
“Hopium” shared among Tesla shareholders says that high short interest isn’t only not a real concern, but it serves to send its share price even higher — the idea being that short sellers will inevitably close their shorts and go long once it’s clear that Tesla’s share price simply won’t go down.
The velocity of this “short squeeze” would supposedly increase Tesla’s share price dramatically.
“As is true for any stock, if short sellers are forced to close their positions, the buy-to-covers resulting from this short squeeze would positively affect its stock price,” said Dusaniwsky. “But since most of TSLA’s short sellers are long term shorts, convertible bond arbitrage traders, and not momentum short players, a sudden large surge of buy-to-covers is unlikely.”
That isn’t to say, Dusaniwsky added, that Tesla short interest won’t gradually decrease as short sellers tap out due to their losses.
It’s actually been happening all year; the number of shares shorted decreased by 58% in 2020 as its stock price multiplied. Short selling acts as downward pressure on the market, and so the closing of shorts can do the opposite.
[Read: Xilinx stock goes up, AMD stock goes down after $35B buyout]
“TSLA has and is in a very unique position that, like in physics where potential energy is converted to kinetic energy, long side buying potential and short buying-to-cover potential can be converted to upside price movements,” said Dusaniwsky.
Zoom Video, Square, Carvana, Wayfair, and Teledoc Health also exhibit similar properties: “relatively quick and sizeable run-ups in short selling, building up buy-to-cover potential and are now waiting for a catalyst to start the reaction that will lead to upward stock price pressure,” he concluded.
Story byDavid Canellis
David is a tech journalist who loves old-school adventure games, techno and the Beastie Boys. He’s currently on the finance beat.David is a tech journalist who loves old-school adventure games, techno and the Beastie Boys. He’s currently on the finance beat.
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