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Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

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Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#171

Post by LeifCarrotson »

burnished wrote: post #149
LeifCarrotson wrote: post #115

Earlier quoted context omitted.

No, and this distinction is critical to understanding the risk that short sellers take. To use a slightly anomalous stock which hasn't split as an easy example, if you had shorted $BRK in 1980 when the price was $300, the potential upside was just 100%: In your best outcome, they go bankrupt and the most you earn is $300. Unfortunately for you, Berkshire Hathaway shares are now worth $430,000, so your $300 or 100% up…

OK, but the person you were responding to was asking if this also meant that the upside was unlimited - so in your example the answer is 'yes', if you bought in at $300 the stock price can just keep going up without bound. Can you clarify why these are different?

If you win $300, good for you, if you win $430,000, that's even better for you, but the market doesn't really care which way that goes.

However, if you lose $300 that you brought to the table, that's your problem, too bad for you. If you lose $430,000 when you only brought $300 to the table, that's beyond being just your problem, that's the system's problem.

A system which allows this situation to happen is fundamentally flawed, it's vulnerable to exploitation and collapse if this kind of behavior allowed to go on unchecked.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#172

Post by anyfoo »

bryanlarsen wrote: post #118
turbinerneiter wrote: post #15

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for…

> Climate change and the EV transition are going to be tough. That has to be depressing their valuations some.

Does it have to be? I can imagine that going from 100 years[1] of internal combustion engines to an entirely different type of drive train is going to be jarring, to say the least. But neither are EV completely new at this point, nor is a car just its drive train.

Surely other comparable transitions have been successful? Any older computer corporation has more or less reinvented itself a few times. More topically, airplane manufactures must have gone from piston engines to vastly different jet engines at some point[2].

[1] BMW for example exists since 1916. [2] Apparently Boeing was originally founded in 1916, too.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#174

Post by MrPowers »

Tesla can grow and sell tons of cars and the stock price might still fall.

Cisco Systems is a great example of a fantastically profitable business with a stock price that's still below peak. It's an incredibly successful company that makes more than $10 billion in profit every year. The stock price is still below the March 2000 peak.

If Tesla "only" made $20 billion in profit a year, the market would probably consider it a failure. Expectations are high.

I can see the bull case for Tesla becoming a multi-trillion dollar company or the bear case. Hard to assess Burry's position without knowing the expiration date and strike price of his puts.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#176

Post by victor106 »

bryanlarsen wrote: post #118
turbinerneiter wrote: post #15

Teslas price is just too high. I think they will be very successful and become a big, dominant car maker. But their price only makes sense if they end up being the only car maker left. That's not realistic. Building an electric car is not that hard, especially if Tesla already did all the hard lifting for you. For a while I was thinking that the battery play - becoming the number 1 battery supplier - will justify the…

The statement "Tesla market value is the same as everybody else put together" means either Tesla is expensive or everybody else is cheap or the statement is inaccurate. It's a little bit of all three. All other car companies are primarily debt financed rather than equity financed. Ford's market cap is $45B, but because it has $120B in debt which means it is worth $120B to it's bondholders and $45B to stockholders for…

> Tesla also has a really good profit margin.

Their net profit margin is barely 2%.[1]

I would not call it good by any stretch.

By contrast Apple has a 25% net margin[2]. That is what I call good.

[1] https://www.macrotrends.net/stocks/charts/TSLA/tesla/profit-...

[2] https://www.macrotrends.net/stocks/charts/AAPL/apple/profit-...

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#177

Post by dwaltrip »

LeifCarrotson wrote: post #171
burnished wrote: post #149

Earlier quoted context omitted.

OK, but the person you were responding to was asking if this also meant that the upside was unlimited - so in your example the answer is 'yes', if you bought in at $300 the stock price can just keep going up without bound. Can you clarify why these are different?

If you win $300, good for you, if you win $430,000, that's even better for you, but the market doesn't really care which way that goes. However, if you lose $300 that you brought to the table, that's your problem, too bad for you. If you lose $430,000 when you only brought $300 to the table, that's beyond being just your problem, that's the system's problem. A system which allows this situation to happen is fundament…

Does that ever actually happen? I thought that a margin call would come far before it reached that point, limiting the damage to any of the involved parties.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#178

Post by arcticbull »

AlanSE wrote: post #168
arcticbull wrote: post #125

Earlier quoted context omitted.

With a put option, you pay premium in the form of "theta decay" over time. If Tesla stays flat, you lose your entire premium, and on a stock like TSLA with high implied volatility, that can be a very expensive proposition. Similarly, with a short position, you'll be paying a borrow fee which will vary over time based on short interest.

Fascinating subject. I also just want to mention why it makes sense that people SELL put options, in addition to buying them. If you sell a put option, then you have the obligation to sell in the future at the fixed price, regardless of the market price at the time. However, many of these positions are "covered", meaning that someone can sell a put option while owning as many stocks as they sell in options. So if the…

That's when you sell a covered call.

When you sell a put, your obligation is to pay the strike to buy someone else's shares.

For instance, AMD is trading at $77. Let's say I'm long-term bullish on AMD, but don't want to pay more than $70 for it. I can sell $70 puts every week, collect the premium up front, and then if AMD closes below $70 on the expiration date of my short put, I'm obligated to pay $70 for the shares, even if they're trading much lower. I win because I get to collect the premium no matter what, and if I get assigned, I bought at a discount to the market price when I sold the puts.

A covered call gives you the obligation to sell your shares to someone else if the option expires in the money. This is a great way to exit a position, for the same reason. You can sell calls repeatedly at the lowest price you'd accept for your shares, and if it moves down, you've hedged. If it moves up, and you get assigned, you sold for above market price as compared to when you sold the call.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#179

Post by arcticbull »

Kranar wrote: post #140
arcticbull wrote: post #126

Earlier quoted context omitted.

True, but if it doesn't go anywhere you lose it all with a put, and lose far less with a short (just the borrow fee).

In other words, a short and a put are not remotely the same things and are meaningfully distinct from one another.

I certainly agree their risk-reward profiles are materially different. They're similar in that they are both bearish positions.

Re: Michael Burry of ‘The Big Short’ reveals a $530M bet against Tesla

#180

Post by mixmastamyk »

wwweston wrote: post #122
paxys wrote: post #10

The only new reveal is the dollar figure. Burry has been very openly (and vocally) short on Tesla for a while now. He has been Tweeting a bunch about it since September last year. Tesla shares are up ~75% since those original Tweets. "The market can remain irrational longer than you can remain solvent" applies to both amateur traders and the most seasoned investor/genius alike.

Possibly worth noting that Burry is not the only Big Short figure to openly opine that Tesla's pricing seems way out of whack compared to its fundamentals. Steve Eisman (aka Mark Baum in the movie) was publicly short Tesla for a bit. I think he ended up closing out and losing money at some point with a rueful "It's very hard to short a stock that's a cult." It's possible both of them are wrong and Tesla has fundament…

Odd that trillions in stimulus has not yet been mentioned in the thread. Reality is mostly checked until that dissipates.
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