Short sellers hold their positions despite Tesla surge
27 July 2020 New York
Image: Tesla
Tesla’s share price surged in the run-up to its Q2 earnings amid speculation the company was about to be included in the S&P 500.
This prompted a large number of short sellers to exit their position at a loss, driving demand to borrow to record lows.
However, Ortex analysis has found a small number of short sellers are stubbornly holding their positions despite the surge in Tesla's share price.
The Ortex platform shows 11.3 million Tesla shares are still held in short positions.
Speculation about the impact of inclusion in the S&P 500 may be overstated, creating an opportunity for short sellers to take advantage of a "hype premium", says Peter Hillerberg, co-founder of Ortex Analytics.
“It is highly likely that what we’ve seen over recent weeks is at least in part a “short squeeze” whereby the Tesla share price has been pushed higher by short sellers closing their positions," he says.
“For high-conviction short sellers, this will just have been a further signal to hold tight and wait for an opportunity to take profit.”
In a note published before Tesla’s Q2 earnings announcement, Ortex estimated that Tesla’s inclusion into the S&P 500 could equate to around $40 billion of buy orders.
However, it also pointed out that these orders would represent a “modest” three days of trading volume and that speculative buying was likely to be more significant than the index inclusion itself.
Hillerberg adds: “A surge in speculative buying could be a signal for new short sellers to take a position and seek to take advantage of the hype premium which has characterised so much of Tesla’s price movement in recent years.
“It remains to be seen whether the short sellers that have maintained their position will benefit from their resilience, but whichever way you look at it, the battle of wits between Tesla and its short sellers is far from over.”
This prompted a large number of short sellers to exit their position at a loss, driving demand to borrow to record lows.
However, Ortex analysis has found a small number of short sellers are stubbornly holding their positions despite the surge in Tesla's share price.
The Ortex platform shows 11.3 million Tesla shares are still held in short positions.
Speculation about the impact of inclusion in the S&P 500 may be overstated, creating an opportunity for short sellers to take advantage of a "hype premium", says Peter Hillerberg, co-founder of Ortex Analytics.
“It is highly likely that what we’ve seen over recent weeks is at least in part a “short squeeze” whereby the Tesla share price has been pushed higher by short sellers closing their positions," he says.
“For high-conviction short sellers, this will just have been a further signal to hold tight and wait for an opportunity to take profit.”
In a note published before Tesla’s Q2 earnings announcement, Ortex estimated that Tesla’s inclusion into the S&P 500 could equate to around $40 billion of buy orders.
However, it also pointed out that these orders would represent a “modest” three days of trading volume and that speculative buying was likely to be more significant than the index inclusion itself.
Hillerberg adds: “A surge in speculative buying could be a signal for new short sellers to take a position and seek to take advantage of the hype premium which has characterised so much of Tesla’s price movement in recent years.
“It remains to be seen whether the short sellers that have maintained their position will benefit from their resilience, but whichever way you look at it, the battle of wits between Tesla and its short sellers is far from over.”
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