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It’s important to note that Elon screwed over the “longs” (people holding TSLA stock) too, not just the shorts. Many people and funds bought more TSLA stock in
by Asparagirl 8y ago
It’s important to note that Elon screwed over the “longs” (people holding TSLA stock) too, not just the shorts. Many people and funds bought more TSLA stock in the $350’s range on the assumption that of course the company could/would go private at $420/share. After all, hadn’t the CEO just said so?
- danso 8y agoI was reading r/TeslaMotors that day and a long made the astute observation that shorting the stock after Musk's announcement when it hit around $380 was the most logical thing to do, because at most you'd be out 10% if Musk were telling the truth. If I had a trading account I think I might have gone for that.
- whatok 8y agoMax loss being 10% is absolutely not accurate at all in that scenario. Taking the company private would still be up to a shareholder vote and shareholders could determine that the price offered was not sufficient. In that case, there are a lot of ways the stock could trade above the takeout price.
- danso 8y agoIsn't it possible to set the short order at a max limit to cut your losses? (this shows how little I know about having a trading account)
- whatok 8y agoThis might help: https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp https://www.investopedia.com/articles/active-trading/091813/... The problem with stops is that you run the risk of the price gapping up or down and your stop getting filled at a much different price than expected.
- howard941 8y agoI'm an experienced trader in the sense that I've had only bad experiences trading. Thinking a stop loss order would help I (and the order) failed to account for one of those flash crashes that happen for no obvious reason other than to trigger execution of stopped orders.
- wjnc 8y agoWith leveraged products (like rolling turbos [1]), that risk is usually on the offering institution? I dabbled in those a few times when pretty sure (or full) of myself. There are no margin calls in turbos, you add leverage to your liking (x 2, x 5, x 10, ..) and you pay a hefty interest on your leverage (say 7%). Your exposure is exactly the price you bought for. [1] https://en.wikipedia.org/wiki/Turbo_(finance) https://en.wikipedia.org/wiki/Turbo_(finance)
- howard941 8y agoUnfortunately I was long Kraft (the food co), completely unleveraged, and got taken out at a 15% loss thanks to a flash crash-induced stop loss. It taught me a lesson that only losing real money teaches.
- MichaelApproved 8y agoThe only reliable way to limit losses would be using options.
- defen 8y agoSell short and buy a corresponding (shares short / 100) number of call options at $420 strike (which, in theory, if Musk were telling the truth, should essentially be worthless but in practice will come with some amount of premium). That way you have a guaranteed exit at $420/share + option premium paid. You could reduce your option premium cost while slightly increasing your max loss if you went with $430 calls or whatever.
- MichaelApproved 8y agoWhy not just buy puts and simplify the trade?
- defen 8y agoThat could work too; without seeing the numbers it's hard to say. For example you might have a higher chance of losing your money due to theta decay depending on how far out you're buying. And the premium on the puts is going to be substantially higher than on the defensive calls unless you go significantly OTM.
- mandeepj 8y ago> If I had a trading account I think I might have gone for that. It does not take that long to open a trading account or you could have taken one of your friends help to execute this trade
- danso 8y agoWell, as others have pointed out, I might have been in for a bigger loss based on my assumptions about shorting :). I mean, had Musk been telling the truth.
- RussianCow 8y agoFunding an account usually takes a few business days unless you use a wire transfer, which has a cost. By the time you open and fund the account, it may be too late to execute the trade.
- dyu 8y agoYou can do a straddle and get the best of both sides.
- staplers 8y agoLongs are not "people holding stock". A long is purchased on borrowed capital paid back with interest. It is a much riskier play.
- riphay 8y agoLong is short-hand for anyone benefiting from the price of the stock rising. This includes people who own the stock outright, have bought on credit, own call options, have sold put options, etc.
- bduerst 8y agoYeah, long is slang for long term investor: https://www.investopedia.com/terms/l/long.asp https://www.investopedia.com/terms/l/long.asp
- zodiac 8y agoThe link you posted doesn't support that etymology; there are some proposed etymologies here https://english.stackexchange.com/questions/145376/what-is-the-origin-of-long-and-short-in-finance https://english.stackexchange.com/questions/145376/what-is-t...
- whatok 8y agoThat's definitely not standard industry convention. Previous poster's interpretation is correct.
- ebiggs 8y agoNope, he never said so. He used the word "considering" - to interpret that to mean it's a done deal is stupid, and all the risk you take is your own.
- Jefro118 8y agoHe also said, "funding secured at $420 a share", which wasn't true.
- dforrestwilson 8y ago^ Jefro118 is correct. This is the a significant phrase in financial and regulatory circles.
- pbreit 8y agoHow about on Twitter?
- dforrestwilson 8y agoIt’s irrelevant where it is said so long as it is said publicly. Edit: This is the same reason Elon is now being sued for "Twibel". You cannot say state lies publicly without legal repercussions. "Funding secured" is classified as material non-public information. I used to work in finance and regulatory compliance.
- pbreit 8y agoI'm guessing there is a HUGE difference between, say, Twitter, and a regulatory filing.
- GW150914 8y agoThere’s no requirement that he lie that way in a regulatory filing, previous posters are trying to explain to you that it’s enough to make the claim publically. Lying in a filing would be a different crime.
- pbreit 8y agoI would never equate "considering" with "of course".