Tesla Inc - the most heavily shorted US company - is set to report quarterly results on Wednesday, and short-sellers could be dealt a nearly $850 million loss or gain, depending on the direction of the post-earnings stock move.
Short-sellers aim to profit by selling borrowed shares with the hope of buying them back later at a lower price. The electric carmaker, which is rapidly burning cash and struggling to turn a profit, is a favorite target for shorts.
About 35 million shares, or roughly 28 percent of Tesla's free float, are currently sold short, pegging the short interest at $10.53 billion, according to financial analytics firm S3 Partners.
Based on the price of weekly Tesla options contracts set to expire on Friday, traders in the options market expect the shares to swing by about 8 percent after the company reports results.
A move of that magnitude to the upside would mean that short-sellers would rack up about $842.6 million in on-paper losses, while they would make as much in on-paper gains if the share reaction is negative, according to S3 data.
Headed into the results, short-sellers, who came in for a good deal of pain in the second-quarter as Tesla shares soared 29 percent, helped by encouraging production-related news, have shown little inclination to tweak their bets on the carmaker.
"There has been virtually no net change in shares shorted in over a week," said Ihor Dusaniwsky, head of research at S3 in New York.
"Although short-sellers' conviction in Tesla's longer term performance is solid with no significant short covering since the end of June when Tesla hit its year-to-date highs, I haven't seen a rush to short more shares in anticipation of weak results," he said.
Tesla's post-earnings reaction will also decide whether short-sellers, who are down $170.9 million in mark-to-market losses for 2018, turn a profit or go $1 billion in the red, according to S3 data.
On Tuesday, billionaire hedge fund manager David Einhorn told investors that the rally in Tesla shares, which he bet against, turned into heavy losses at his Greenlight Capital fund.
Analysts, on average, expect the Palo Alto, California-based company to report revenue of $3.921 billion, up from $2.79 billion a year ago, and a loss of $2.92 per share, according to Thomson Reuters data.
Tesla shares were down 0.3 percent at $297.21, at noon EST.
First Published: IST