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The market can stay irrational longer than you can stay solvent. Thereβs little rationale in the value of Tesla stock, and thatβs unlikely going to change anytime soon.
Shorting is risky because thereβs theoretically no upper bound of how much you can lose.
Because it's a highly irrational stock, essentially a meme-stock. Utterly decoupled from the underlying company, it's price does not follow established market profiles, so any dealings in it are akin to gambling. Since options are usually leveraged, the losses are higher. And as others have stated, Musk has perfected the art of pumping Tesla stock unexpectedly, so betting against it is incredibly risky.
Musk is a very skilled stock price manipulator. He often lures retail to short and then moves the price violently up to force liquidations of shorts - moving the stock price even higher.
He's also done this enough times now that it has scared off many people who would otherwise logically short the stock - effectively removing a natural downward corrective force.
Yup. And nobody will touch it until it's super obvious. As obvious as summer has ended and autumn will start in a month.
Shorting is intently more risky than being long for two reasons:
Your theoretical loss is unlimited.
If the stock price jumps up and you start accumulating losses on paper, time is not on your side. You cannot simply wait for it to come back down. Your brokerage can force you to close your position and realize that loss without notice.
Now add the fact that Tesla is essentially a meme stock with a valuation based heavily on hype, hope, and the news cycle. You may as well play roulette at the casino. At least you would have some control over your losses that way.
Most people short a stock by buying options. The loss in that situation is limited to the commission you pay to buy the option.
Stock options don't just magically appear out of thin air though. Someone has to provide them. At the end of the day, somebody is taking the unbounded risk, no matter how they've packaged it, and if that person or organization reaches their risk limit and says "nope, this is too risky even for me" then you're out of luck. Yes, realistically there will always be someone willing to take that kind of bet on Tesla, but it doesn't mean it'll be easy to find or that it will always be available through the usual channels.
the downsides is options are time limited. If the stock doesn't crash before the end you have lost your investment. You can keep buying the option but time is still working arainst you
The markets can remain irrational for longer than you can remain solvent
This summarizes the market reaction so well to all things Tesla (news, earnings, musk, etc)
The adage I tend to adhere to is: "The house always wins." Under capitalism, those who have the most capital are "the house".
Companies whose market caps are measured in the trillions of dollars are "too big to fail" insofar as, if a situation arises that meaningfully threatens their bottom line, they have enough weight to throw around to avoid that eventuality. Buy a few congressmen, get some new government contracts, get more favorable loan terms, yada yada. Money talks.
A cursory internet search suggests that no company with over 1 trillion USD in market cap has ever gone bankrupt. At that level, they become somewhat self-fulfilling success stories in the same way people born into rich families are seen as successful despite not necessarily doing anything innovative or clever.
no company with over 1 trillion USD in market cap has ever gone bankrupt
The first company to hit $1 trillion market cap was Apple in 2018. We have 9 total today. That's not much data to work with.
My theory is that Musk personally controls a few billion in liquid cash that he uses to straw purchase large amounts when he needs to pump the stock. Then he slowly sells, not necessarily to make money, but just to refill the liquid funds necessary to pump the stock again at the right time.
I mean with his wealth he could have a slush fund of like 80 billion and not even flinch
It would have to be a straw purchase to avoid issues with mandatory reporting laws since he is a major stock owner. So I'm sure his personal liquid funds are kept far removed.
Govco contracts?
