Short-sellers borrow shares they believe are overpriced, sell them, and then repurchase shares later at what they hope will be a lower price to make a profit.
Such investors have long been an irritant for Musk, who has sometimes used Twitter to criticize them.
So, these people gamble on the backs of people who are, perhaps, not so savvy and make a profit if their gamble pays off. Okay. In this case, it seems they were played. That’s part of the gamble.
But Isaacs said Tesla’s and Musk’s conduct caused the volatility that cost short-sellers hundreds of millions of dollars from having to cover their short positions, and caused all Tesla securities purchasers to pay inflated prices.
Well, if you can’t afford to lose, don’t gamble in the first place. Short selling may be a legitimate game on the stock market, but it is ethically dubious and these guys got their fingers burned. Colour me unsympathetic. Suing Musk is just showing them up to be sore losers, frankly. Hopefully they will lose in court and have to stump up the costs.
Remember, the value of shares can go up as well as down.
According to his complaint, Isaacs bought 3,000 Tesla shares on 8 August to cover his short position.
Oh dear, how sad, never mind.
From the little that I know about Tessa, it appears to be a bit of a Ponzi scheme. People are expected to stump up a pretty large deposit up front for a car that has yet to be built and, given the company’s problems with production, is unlikely to appear in the near future.
So I’m not sure that Mr. Musk should be lecturing other people about dodgy business practices.
Probably true. I wouldn’t touch one with a barge-pole. However, he seems to have played a blinder with these idiots. This is one of those “can’t they both lose” situations.
Auto correct is of course responsible for the misspelling of Tesla.
So if you bet on a horse and lose, it’s legitimate to then sue the jockey is it? The venality of the legal ‘profession’ never ceases to surprise me. Bollocks to the lot of ’em.
I don’t know in this computer age it it is still possible, but a practice used to exist of selling shares which you did not own at the time. That was possible because of the ‘accounting day’ of the stock exchange. You could sell shares which you did not own provided that you bought them back before the ‘accounting day’. I think that the accounting day was fortnightly. So, if you thought that the price of a share would fall soon, you sold at the higher price and bought back at the lower price. EG, sell 1000 BT shares at £1 each and buy back, within the fortnight, at 50p each. Profit, £500. Of course, you would lose out if the shares in question did not fall in price.
Apparently, they borrow the shares. I’m not sure how that happens or who lends them.
@Junican
Correct. Settlement in 80s was two week period, gradually reduced. Back then you could short/long on trust. iirc Barings was the destruction of trust.
On BT: In bank: me long haired biker in dripping wet gear – I sold 1/2 before certs received; well dressed woman in front was refused.
Trust/history/reputation…
Short selling has always been a bit of a roulette game. Far too unpredictable and risky for my tastes. But suing because you short sold and lost? Jesus H Christ on a bike, the nerve of some people. Cry me a river. Not.
They’re suing because Musk has allegedly broken SEC laws.
imho he has.
Quite – I think that’s a fair summary.
However, you could also take the line that the short sellers could have held their collective nerves – the share price is back down again.
More generally, short sellers are an important part of the market – without the ability to short sell, the price is stickier in one direction than the other. If it’s rising sharply, it is eminently possible (if not necessarily sensible) to borrow money to buy shares, increasing the upward pressure. Short Selling is the exact corrolary (with the same caveats…) if the price is – or needs to – fall sharply.
Maybe, maybe not.
https://www.bbc.co.uk/news/business-45173541
If he goes ahead as planned and delists, then he has mislead no one. Short selling, like any trading on the stock market is a gamble, These people played the game and lost. Now they are sore losers. I have no sympathy.
That’s also fair. He will, however, have broken some fairly important SEC rules:
https://streetwiseprofessor.com/elons-magical-mystery-tour-gets-more-magical-by-the-day-80-billion-is-only-the-beginning/