Loading ...Before I tell you my theory, let me dispel the most common one. Many people are claiming this is the biggest short squeeze in history. Although short interest was at one point extremely high for this stock, over the past year, it has steadily declined.
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You might run across all sorts of scary charts highlighting a massively growing notional amount of Tesla shares sold short. Ignore that. It means little with the stock exploding in value. What matters is shares sold short. And that number has been steadily declining. When you combine the fact that there are a few convertible bond issues that are now deeply in the money (and therefore likely have fully hedged short positions against them), the amount of short sellers betting on this company falling has been dramatically decreasing. No doubt there are still some left. But they are not driving the run higher. If they were, the borrow rates would be increasing, and instead they are falling. Nope, the shorts are not the culprit.
Next most cited reason for the rise in Tesla’s stock price is short gamma from the market makers. Now I buy this theory – to some extent. Tesla has definitely become a retail (and institutional) trading darling. On the whole, clients are buying options from market makers, creating a negative feedback loop both ways. As the stock rises, the market makers find themselves short more stock, so they need to buy more. As it falls, they need to short it again. The massive negative gamma dealer position is definitely exacerbating stock price movement (and it will happen both ways – make no mistake about it).
The most hilarious part of this phenomenon? As my pal, Bloomberg reporter Luke Kawa recently noted, in the reddit forums investors have clued into this reality and are trying to orchestrate bull raids on other stocks (which is highly illegal, but then again the SEC didn’t seem to shut down Elon for all his infractions, so I guess manipulation on the upside isn’t manipulation but instead just good trading).
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