Tesla’s (NASDAQ: TSLA) price adjustment from its stock split took effect yesterday, and short-sellers are feeling the heat from the company’s surge in price once again.
Tesla shares rallied 12% on the first day of post-split trading after the trading volume was well above its daily average, with 115.6 million pieces of stock trading hands. The company’s valuation has continued to explode amidst the rush to buy TSLA shares after the split occurred, and it’s not resulting in a lot of profitability for investors who are shorting the electric automaker.
CNBC described how short-sellers are continuing to feel pressure apart from the obvious fact, which is that Tesla’s shares have grown exponentially in value in 2020.
When stocks are split, especially if the stock in question is heavily shorted, it can cause problems. Whether the stock is put into a basket of derivatives or special financing is used on the short, things can get dicey because the price per share changes, the CNBC crew explained.
The issues do not usually affect retail investors who are shorting small amounts of the stock. The problems come more from large funds or companies that are shorting the company in massive figures.
Whether the stock is being shorted based on derivatives or Delta One products, which are derivatives that have no optionality, things can tend to go haywire, the team explained.
More relevant than not, the company’s surge in price yesterday also caused some issues for short-sellers, as it has done for the first eight months of the year.
According to financial analytics firm S3 Partners, Tesla shorts are down $25.4 billion in mark-to-market losses so far this year. With the adjusted price, Tesla stock has gone from $86.05 per share on January 2 to over $482 this year. The surge in price can be attributed to Tesla’s development of batteries and vehicle technology. The company’s energy supply and storage sector is also booming and has managed to grow this year, according to the company’s most recent Quarterly Earnings Update.
Additionally, shorting Tesla’s stock is not an expensive move anymore. “It’s a very inexpensive stock to short, believe it or not because nobody wants to get in front of a moving freight train!”
Tesla’s stock split was announced on August 11, and the primary intention of the move was to increase the likelihood that young people and employees of the company could get in on investing. Many trading platforms reported issues with functionality yesterday, which could be attributed to both Tesla and Apple stock performing splits on August 31.
Watch CNBC’s Squawk Box talk about TSLA stock and how its affected short-sellers below.
Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.