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Company founder and CEO Elon Musk may not mention Tesla Motors Inc's (TSLA.O) stock price when his electric car company gives its latest financial update on Wednesday, but it will be front and center for investors divided over its seemingly rich valuation.
After a rally that ended in April, Tesla's market capitalization is currently about $31 billion - equivalent to $620,000 for every car it delivered last year, or $63,000 for every car it hopes to produce in 2020.
By comparison, General Motors Co's (GM.N) $48 billion market value is equivalent to about $4,800 for every vehicle it sold last year.
Tesla's heady valuation - about 125 times the next 12 months of expected earnings - and the implication that shareholders may be overpaying for Musk's small but fast-growing luxury car company have made the stock a favorite of short sellers.
Source: Reuters
(Score: 0) by Anonymous Coward on Thursday May 05 2016, @03:27PM
Shorts are not timed, you are probably thinking of options contracts which have expiration dates but can be freely traded up until they expire at which point their value goes to zero.
Many people short on margin, that means they borrow money (that is secured by the other securities they own) in order to purchase their short positions. When the price goes up, that short position becomes more expensive because the cost to close it out goes up. That cost increase means an increase in the amount of money they are risking on margin. At some point their 'credit limit' runs out and they must either come up with more cash to make up the difference or close their short position (aka buy actual shares). Which, in a heavily shorted stock, can cause a cascade effect known as a "short squeeze."
(Score: 2) by Capt. Obvious on Thursday May 05 2016, @08:43PM
So, if the price remains flat forever, I can hold a short position at no cost forever? And the only limit I have is that I put up, say 10k in cash and credit. So if the delta between my short price and the actual price becomes 10k (in aggregate over my shares), I have to make good. But other than that, it's all good?
(Score: 2) by legont on Friday May 06 2016, @12:24AM
You'll still have to pay dividends if any and interest on borrowed funds, including shares themselves.
This is why it is much easier to bet on rising market. You are always timed when you are short regardless of actual instrument be it borrowed shares, options, futures or whatever over the counter thing, while long position can be maintained with no costs.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by Capt. Obvious on Friday May 06 2016, @01:37AM
Okay, so if I borrow money to fund the short, I pay interest. Sure. But if I put that 10k in, I'm presumably just losing out on the opportunity cost of that capital... Except I have to match whatever dividend the stock issues? So, for... what stock never pays dividends, Amazon?, it would essentially be a long term bet?
And yeah, it's obvious that the betting on a rising market has a structural advantage.
(Score: 3, Informative) by legont on Friday May 06 2016, @02:54AM
You need to borrow the stock to sell and the owner will not let you do it for free.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.
(Score: 2) by Capt. Obvious on Friday May 06 2016, @06:17AM
Ah, it's a real loan of stock you sell. You're not just selling a contract which obligates you to buy back the stock later.
Thanks for the help, I never really understood shorting before. I mean, I got the concept at a high level, but not the mechanics.
(Score: 3, Interesting) by legont on Friday May 06 2016, @10:18PM
Real is a shaky concept when one talks about financial innovations, but yes, in this particular case broker has to have real securities on somebody's account that he will loan to you. Conspiracy theorists claim that they in fact violate the rules, especially when commodity such as gold is concerned. There are also contracts without any underlying securities involved, but they are usually in futures/forwards/swaps fields.
Nevertheless, they will charge you for keeping short position.
"Wealth is the relentless enemy of understanding" - John Kenneth Galbraith.