Tesla Short Sellers Heap On The Pressure Following The Most Profitable Trade Of 2022

Short sellers targeting Tesla Inc’s stock are piling more pressure on the electric vehicle maker led by Elon Musk, fresh off their most profitable year ever.

According to data from analytics firm S3 Partners, traders who aim to profit by selling borrowed shares and hoping to buy them back later at a lower price have increased their short positions on Tesla to approximately 79 million. According to the data, this is an increase of nearly 4%, or $325 million in new short sales over the last 30 days.

Tesla short interest is now $8.76 billion, or nearly 3% of the share float, down from $14 billion a month ago, reflecting the stock’s steep drop.

Tesla stock dropped roughly 65% last year. The decline accelerated after Musk decided to purchase the social media network Twitter, which some investors saw as a distraction for the billionaire CEO. Tesla shares fell as much as 7.9% on Friday to $101.81, their lowest level since August 12, 2020, before recovering to add 1.2% to $111.69. This year, the stock is down about 9%.

“It looks like shorts are thinking the stock has some more downside risk,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. “As the stock price hits a floor or expected value for short sellers, they will start trading positions to realize their profits. … We haven’t seen that in Tesla yet,” he said.

According to S3 data, Tesla was the most profitable short trade in the US market in 2022, earning $15.85 billion in paper profits for investors. That was Tesla short sellers’ best year ever, but they only recouped about a quarter of the $60 billion in estimated losses from 2010 to 2021.”Some shorts are certainly cashing out their gains while new shorts may be cycling in on the hopes that the downtrend continues,” said Evan Niu, an analyst at Ortex, which tracks real-time short interest data.

Traders in Tesla options are leaning toward bearish bets, with pricing implying a 53% chance that the stock will fall more than 12.5% in the next three months. According to Refinitiv data, option positioning indicates only a 31% chance that the shares will rise by more than 12.5% over the same period.

(Adapted from USNews.com)

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