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What would happen if the Shorts went Bankrupt?

What would happen if the Shorts went Bankrupt?

I think this is a possibility as the FUD is so stupid only a fool would listen.

lbowroom | 21 mei 2019

(However unlikely)

kaushal | 21 mei 2019

nothing really, EM may get an ego boost since he gets into twitter fights with shorts all the time.

Mike83 | 21 mei 2019

A couple of things. The stock would go much higher since there were about 40 million shares shorted on last report.
to cover 40 million shares at $500/share would be $2 x 10 to the tenth or $20,000,000,000 or 20 billion dollars. Hope they can cover if it goes there or higher. I can see why the FUD is pervasive.

Thehowie | 21 mei 2019

There will always be people willing to bet on a stock going up or down. If you are certain that the shorts are wrong, you should lever yourself up and buy until you have no more assets to mortgage. Markets may not always be efficient in the short-run, but they certainly are in the long run.

Mike83 | 21 mei 2019

I am just asking for opinions and not interested in investing advice. I am very well financed. Shorts have no limit to their potential losses and if they had to declare bankruptcy I wonder who would cover them.

VolleyballNE1 | 21 mei 2019

Shorts can't go bankrupted. The brokerages will take over and cover for them before that will happen and leave them with close to nothing. Or I'd hope they would be on top of that.

Mike83 | 21 mei 2019

But what if the the stock went up to say $700 just overnight and shorts have to come up with $30 billion? The shorters lose everything but can the brokerages or their insurance cover that big lose or is there a limit?

VolleyballNE1 | 21 mei 2019

margin calls and circuit breakers will minimize that kind of volatility.

Mike83 | 21 mei 2019

Does the SEC really protect the shorts? Maybe the government would come up with the cash.

Mike83 | 21 mei 2019

But the price is $700 and they have no margin, so how would the circuit breakers work in that case?

greg | 21 mei 2019

@Mike83 I understood you had to have sufficient assets to cover your bet before you placed it.

So, in theory if $30 Billion is needed, then all shorts are supposed to have the wherewithal to do so.
Of course, they may have been able to cover it when they placed the bet, but may not when its called.

So, they might well have to dump $30 Billion of other stocks they hold to cover their losses on TSLA.

Imagine what a general $30 Billion share market "fire sale" would do to the overall market in that case if that did happen.

As for "insurance" like any risk sharing scheme, the insurance cover is not limitless. There are limits, and again, whether $30 Billion would be sufficient to topple all or some of the insurers? I doubt it.

Insurance companies do go broke but pretty rarely. Everyone else, not so much.

texxx | 21 mei 2019

If you think shorts are bad now, all you have to do is look back to the days when uncovered shorts were allowed. Now THAT was gambling (with other people's money).

lbowroom | 21 mei 2019

Mike83 - I'm not a market expert, but what you are describing would require the bid/ask to go from 205 to 700 in one step. That's fantasy, what's the point in discussing it? Unless that's your point?

dmastro | 21 mei 2019

What if Elon's shorts go erupt?

I think that question is about as nonsensical as this conversation.

VolleyballNE1 | 21 mei 2019

The market learns from the past. They have measures in place to minimize the likelihood and impact of the scenario you speak of. If you file for bankruptcy because of a short position, I believe the brokerage is on the hook for the balance, thus, they have the margin policy to limit this from happening. They probably would try to collect according to bankruptcy laws. And if they can't collect from you, then maybe they have an insurance policy? If not, then it will cut into their profits, and if it's so bad, they too will file for bankruptcy. And if the government thinks it needs to step in, then it would. It's a bad domino effect if it isn't prevented. So they try to prevent it.

Sunergy-NJ | 21 mei 2019

Big party in Palo Alto and Fremont?

Mike83 | 21 mei 2019

@VolleyballNE1 So the brokerage would probably liquidate all holdings of the shorts like they might have 10 million shares of GM which drop the price of GM a lot. Reminds me of the 2008 Great Recession that took out some firms like Meryl Lynch and Lehman Brothers using fancy hedging strategies which became useless. If the firm is a market maker and has naked shorts outstanding caught blindsided it could bankrupt them I believe. Probably rare.

Mike83 | 21 mei 2019

@VolleyballNE1 So the brokerage would probably liquidate all holdings of the shorts like they might have 10 million shares of GM which drop the price of GM a lot. Reminds me of the 2008 Great Recession that took out some firms like Meryl Lynch and Lehman Brothers using fancy hedging strategies which became useless. If the firm is a market maker and has naked shorts outstanding caught blindsided it could bankrupt them I believe. Probably rare.

isleboy | 21 mei 2019

You can short only with margin accounts. Which means you are borrowing stocks on a loan. If your shorts get to the point of a margin call being issued, usually when your total equity falls below 33.33%, your brokerage gives you certain time limits to improve your cash position by either an infusion or selling of other stocks you hold to cover the call. The need to cover is only determined after market close. If you are unable to cover the call with a cash infusion, and take no action to increase equity by selling other stakes then the brokerage forces sale of other assets to complete the margin call. If you don't have enough assets (usually won't happen since you can only borrow against what you have), then they will issue a lien against your assets as basically you took a loan from them. Declaring bankruptcy does not absolve you of the debt because your brokerage will definitely force you to declare all your assets and go for arbitration before that happens.

VolleyballNE1 | 21 mei 2019

Yup, and the events of the past dictate current policies. So your scenario, likely won't happen.

Mike83 | 21 mei 2019

Unfortunately Dodd Frank was changed leaving fewer safeguards so it's not so unlikely.

https://www-nytimes-com.cdn.ampproject.org/v/s/www.nytimes.com/2018/05/2...

ADinM3 | 21 mei 2019

The situation I think the OP is getting at doesn't really happen in real life. If the stock becomes volatile, etc the margin reserve required changes accordingly.

Yes, if a 36B market cap company could increase 10x overnight and become a 360B market cap company overnight which I think is the type of scenario the OP was talking about, then certainly the shorts would be in deep dodo and as @Isleboy mentioned they would be coming for the short's house and any assets they have in order to collect.

I honestly don't know who eats the loss if there was a large bankruptcy in the 10x fictitous scenario, but I assume the brokerage house would have to cover, but I'm certain this is forseen and is somehow insured or protected against.

synfendia | 21 mei 2019

@Mike83, I applaud your spoof of my post.

Even though I clearly made the disclaimer that I don’t believe the FUD, you latched onto that idea, as did many others. So easily triggered.
Both FUD and Fanboy-ism is so predictable, we could write a fairly convincing chatbot for it. Let’s create even more insipid noise.

Mike83 | 21 mei 2019

With lack of SEC oversight of the shorters and the unscrupulous shorts this could damage the economy since the Dodd Frank safeguards altered. Russian trolling has proved successful. This is problematic but hopefully someone is keeping tabs.

Mike83 | 21 mei 2019

With lack of SEC oversight of the shorters and the unscrupulous shorts this could damage the economy since the Dodd Frank safeguards altered. Russian trolling has proved successful. This is problematic but hopefully someone is keeping tabs.

Mike83 | 21 mei 2019

@synfendia For maybe 10 years many have been calling for Tesla to go under but it didn't and is now at its best position ever. People oversubscribed to invest in Tesla and Elon told his workers to tighten up and keep up working hard. Of course the news media interpreted it to favor the shorts which I think are at the end of the game. The M3, MY, Semi, Powerwalls, Powerpacks, MX, MS and the coming Pickup all with Supercharger network are selling worldwide. Oh yes and the Shanghai factory is ahead of schedule serving the largest EV market in the world. The Maxwell acquisition will reduce manufacturing costs a lot. The calm before the storm. I only hope the shorts are able to cover and it isn't all fancy financial instruments like the CDOs that crashed the economy.
This is my feeling that the shorts are more in danger.

aasandsas | 22 mei 2019

What most of you don’t realize is that Tesla stock is priced as West Coast technology company with high P/E but in theory it is more of a hybrid with a manufacturing company.

Shorts is just one indicator and please stop being stupid to believe that shorts want company to fail. On the contrary shorts believe valuation is too high. There are complicated financial and hedging strategies, but long story short.... shortsellers are here to stay until stock prices out to a reasonable levels in market. What Tesla needs is constant net positive cash flow churn to support its fledging expansion. Only time will tell.

I posted in another thread that lower the overall valuation.... it’s is becoming a good minority acquisition target. Many companies have cash to invest in Tesla. Who first does is a big question. Best bet is to give long term loan to Tesla with option to convert into equity longer term to fund their day to day operations, expand in short term while paying off their debt due. This doesn’t dilute equity shareholders in short term, keeps the lights on in factory and at the same time improve cash situation.

Secured loan owners are the first ones to get paid in case of bankruptcy.

upend | 22 mei 2019

Forgetting the unlikelyhood, what would actually happen is that many insolvency companies would spend a long time settling and unwinding all the trades.

It's taken 10byears to do this for Lehmans

WantMY | 22 mei 2019

AWW! Mike83 - old fart troll lost significant chunk of his severely depleted retirement savings, too bad trolsky, lol

Mike83 | 22 mei 2019

Looks like I touched a few nerves but I am really concerned about an economic crisis in the US. I actually have lots of cash and invest in foreign stocks. Don't trust the US SEC.

tew ms us | 22 mei 2019

A Clever Move by Porsche on VW’s Stock

"On Wall Street, a corner is not just an intersection of two streets. It is also a way to extract huge profits from speculators who had the temerity to sell a stock short."

https://www.nytimes.com/2008/10/31/business/worldbusiness/31norris.html

My favorite historical short squeeze is Commodore Vanderbilt's fighting off a short attack on one of his railroads by buying up nearly every share the shorts were selling and ending up owning more shares than the railroad had issued.

Can't happen today, though.

Mike83 | 22 mei 2019

Actually I do hold Tesla in a few accounts as I believe they will prosper worldwide and even if I lost in these investments I would still be glad that I helped in their mission. I have purchased 3 Teslas and own 2 now. Like Barron I think k7000 a share in 7 years is very possible. Hopefully the US gets back to business instead of this insanity of hate.

Mike83 | 22 mei 2019

I did well with Hanses Natural at $2/share which is now Monster and after the splits the gains helped me buy another home and put solar on them.

Mike83 | 22 mei 2019

Fighting the commies who want to put in more coal. The GOP probably thinks it is ok.

https://www.afp.com/en/news/826/grandma-ca-99-year-old-standing-vietnams...

Garyeop | 22 mei 2019

Look at TSLA projected EPS. These numbers are real from multiple companies that provide expected earnings per share.

2019 -$4.64
2020 $4.74
2021 $16.32
2022 $24.08

Tesla is going to be a great long term stock.
Data from https://www.nasdaq.com/symbol/tsla/earnings-forcast

Mike83 | 22 mei 2019

Garyeop Nice numbers which don't include new innovation and products such as the AI chip, Energy storage, Semi, etc. Using only the vehicle sales looks good by itself but probably doesnt include the above mentioned revenue sources or projects we know nothing about.
How about that Starlink which will begin Internet service.

TM3Q | 22 mei 2019

You can have many situation:

Short-Squeeze while on active trading session prices increased as there’s a rush of buyer to cover their position and because the ask can’t supply as much so the price goes north like a rocket!

Stocks Halted and when it resume the price jumps many% because of good news, takeover etc. where the ask only available at higher price because investor are not willing to sell for cheap or trying to sell close to takeover bid price.

If a short don’t use protection then the sky is the limit for losses. If a short uses some protection like buying option to limit is loss well at least he knows how much he will lose max if is shorts goes bad.

Worst case scenario for a short is a massive short squeeze on a stock for whatever reasons that particular moment it happens there’s not many shares available to buy. With a takeover you know how much you will lose as price normally doesn’t go higher than the takeover bid but with a massive short-squeeze there’s no limit :-)

Mike83 | 22 mei 2019

Lets hope there are not many naked or non hedged shorts. They have been fortunate for now but things change. No one can predict timing on that.

dmastro | 22 mei 2019

Glad someone is looking out for the shorts, they'll feel better.

Veering away from the large institutional buyers, who I'll just assume have short holdings as part of an overall balanced portfolio strategy, I hope not too many individuals are overweight on either the short or long side. Would hate to see them lose their retirements.

Mike83 | 22 mei 2019

Likewise.

ModelYMaven | 22 mei 2019

New poster here. I'm also just purchased a whole 4 shares of Tesla stock mostly because I wanted to support Tesla (I'm a future owner of a Model Y.) So far, I've lost money--but I am trying to be patient and not sell off just because the market sucks and the bad news just keeps coming for Elon M. I mean, it's just 4 shares, right?

jimglas | 22 mei 2019

Sell at $4k/share

dmastro | 22 mei 2019

@jimglas Are you buying at $4K? Looks like @ModelYMaven and you may be able to strike a deal.

Mike83 | 22 mei 2019

TM3Q With less oversight I can't really predict what might happen. But a ripple effect is possible. Right now I was watching QCOM down 12% but can't bring myself to buy anything in the US market.

weluvm3 | 22 mei 2019

Op: doesn't look like that's going to happen any time soon.

Mike83 | 22 mei 2019

Two weeks ago I saw truckloads of M3s going on I5 north. This is maybe where they are headed. What lack of demand are the shorts pushing now?

https://cleantechnica.com/2019/05/22/tesla-vancouver-store-reportedly-ta...

terminator9 | 22 mei 2019

I don't have a ton of information but if you look at the sales numbers, it's declining. It can only mean that either supply is short or demand is short. From the quarterly reports you can tell that they are making a lot of cars and I see them stacked up in Service Centers so it can only mean that the demand is going down, at least in US. If they took those extra cars and shipped them internationally that would be another story but they may have some left hand/right hand drive and region issues with that approach. I don't know how to read the numbers any other way.

dmastro | 22 mei 2019

@terminator9: I haven't looked at sales / delivery numbers lately, but there's typically correlation with pricing. If pricing is being adjusted lower, it's more than likely they're trying to create more demand.

mrburke | 22 mei 2019

What would happen...
The brokerage houses that loaned the shares would be on the hook.

Shock | 23 mei 2019

"Looks like I touched a few nerves but I am really concerned about an economic crisis in the US."

To which crisis do you refer? The one that has a sub 4% unemployment rate or the one that had the S&P500 hit a record high a few weeks back?

Some of the people in this forum were buying the dip when TSLA dropped down to $300, gleefully and confidently making claims about future windfalls for themselves. Where are they now? TSLA now drops below $185.

And still it is wildly overvalued. To understand why read @aasandsas' post above:

"What most of you don’t realize is that Tesla stock is priced as West Coast technology company with high P/E but in theory it is more of a hybrid with a manufacturing company."

Only the truly delusional think TSLA is still a rapid growth tech company. That ship has sailed. It's gone. Now TSLA is fast approaching valuation of a struggling car company and by God if you think you've seen losses so far you ain't seen nothing yet. If its valuation approximates an unprofitable manufacturer instead of a pie-in-the-sky tech company you'll wish you had sold at $185 (which it is now pre-market).

Many have thought the tech was overpriced for a very long time, but as far as I'm concerned it became so glaringly obvious back in the feb/march time frame when sales volume was starting to be understood for Q1 that anybody still long this company was nothing short of ignorant.

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