Tesla Inc (NASDAQ:TSLA) has once again become one of the most interesting bullish stories on the street. The stock has been on a rip-roaring tear following the company’s surprising jump in bottom-line performance during Q3. In many ways, it was a major haymaker punch landed by Elon Musk to the jaw of the company’s detractors, bears, and shorts.
And that’s exactly what makes this story so interesting right now: the prevalence and size of the bear bets on the table. For those readers who have been around markets for a few years, you may recall the famous campaign by Bill Ackman against Herbalife (HLF), where he swore and swore that he had figured out that the company was worthless and would shut down in bankruptcy, and launched a massive short bet.
Tesla Inc (NASDAQ:TSLA) represents an entirely different situation in almost every respect except one: when Ackman’s bet started to reveal some cracks – when the company started to put up better numbers and the stock started to run against him – it was very much like there was suddenly Ackman blood in the water. And other fund managers knew it and started to go after it – most notably Karl Icahn. But there were plenty of others.
It really was like the rest of the big money started to see that Ackman was basically cornered on it, and that he would need to cover a gargantuan short position at extremely painful levels, and that they could help to force that decision.
When you’re short something on big size, the decision about whether or not to cover includes an extra dimension beyond that which one experiences as a strictly long-only shareholder: the risk is infinite.
Hence, if you are short a relatively small float stock, and have big size, and other major market players know about it, they will also know that, if you cover, the stock could blast off into the stratosphere simply because of the tape mechanics.
That incentivizes both buying and verbal/media support for the company for those who start to gun for the big squeeze. This is exactly what we saw 5 years ago in HLF.
And, with David Einhorn and Jim Chanos (and others) allegedly loaded to the gills with TSLA short interest, and the stock starting to push higher following a great Q3 report, we may have something similar starting to percolate right now in TSLA.
Keep in mind that we are not simply talking about a short squeeze. It isn’t merely the potential covering of large shorts. It is the market’s full awareness that this could be coming.
Way back in the old days of the market, we used to have something called “a corner”. There was no greater accomplishment for a Wall Street titan of the mid-nineteenth century than to work a corner. Commodore Vanderbilt and Daniel Drew were players in this game. “He who sells what isn’t his’n, must buy it back or go to prison.” That was the mentality.
The idea was all about figuring out if someone might be caught leaning too big against something that wasn’t kicking its legs up. And to go after them by buying up every share in sight until there was no one left to buy it from to cover except the cornering player.
For those dug in deep in TSLA right now, the whole Street knows they are there. The whole Street is suddenly in that position of knowing right now that, if they run this stock up through the roof, eventually it’s going to pay off as the big TSLA bears are forced to cover just to avoid catastrophe.
While there are plenty of positives right now for Tesla on a fundamental level, the poker game around its shares might be quite interesting just in its own right. And there is every incentive right now for Tesla bulls to stampede and try to force some very big covering by those who seemed so entrenched and prescient as bears just a couple weeks ago.