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Charts of the Week - Tesla Leads Short Positions Despite Rally
Source: S3 Partners (data as of 8/2/2018)
*A “short position” is the number of shares that have been sold short but have not yet been covered. Investors sell short when they believe a company’s share price will fall, which involves borrowing shares of a company and selling them until buying them back at hopefully a lower share price and profiting the difference. Buying the shares back is covering and closing out a short position.
Source: YCharts market data as of 8/6/2018
As we discussed in last week’s newsletter, tech stocks have endured significant volatility in recent days. After a mixed bag of FAANG (Facebook, Apple, Amazon, Netflix and Google) earnings results over the last couple weeks, investors turned their focus to Tesla, which released earnings just last Thursday. True to Tesla form, the company lost a staggering $718 million, or $4.22 per share, in the quarter ended June 30, 2018, compared to $336 million, or $2.04 per share, in the same quarter last year. Despite missing analyst expectations of a $2.88 loss per share, Tesla exceeded revenue estimates by approximately $100 million. This was enough to send Tesla shares soaring 16% to $350 per share, its best one-day gain in five years.
Despite the improved revenue results, Tesla remains the most shorted stock in the U.S. on a dollar basis, at $10.5 billion in short interest. Given Tesla’s post-earnings pop, however, short sellers lost $1.7 billion on their short positions, wiping out all profits for the year to date. In terms of negative bets on its future, Tesla is in good company among the tech giants--all five FAANG stocks are among the top ten most shorted U.S. stocks, reflecting deep investor skepticism on their future potential. However, given the recent stellar performances from Apple, Amazon and Google, and the better-than-expected results from Tesla, who has the better perspective on the tech industry’s, particularly Tesla’s, future prospects--the short sellers or the market optimists?:
Regardless of where you come out on Tesla, it’s certain that divisive views will continue, with the next quarter’s results only a few months away. That is, if Tesla even reports earnings next quarter--as of the writing of this newsletter, Elon Musk caused Tesla stock to jump to $371 per share by tweeting that he was considering taking Tesla private for $420 per share.
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