Tesla: When Do The Shorts Give Up?

At what point do you give up on a losing trade or investment? Do you set a certain loss level ahead of time, or do you continue to watch your losses increase, hoping that the stock will eventually turn? These are questions that those short in Tesla Motors (TSLA) must be asking themselves almost every day. The stock rallied into earnings as expectations were high, but yet shorts really didn’t cover in large amounts. Now that shares have rallied even more, is it time for shorts to finally give up? Today, I’ll take another look at where Tesla stands and digest the most recent news.

A quick comment on my latest article:

In the article linked above, I provided a note of caution for investors going into Tesla’s earnings report. After the report, I received a bunch of comments and some e-mails that showed people missed my overall point. My pre-earnings warning was based on the notion that the stock had rallied too much, and that the earnings report was too risky to play for the average investor. At the same time, I’ve stated in multiple Tesla articles that I thought the stock would go higher going forward. I also did not recommend a short position, and in fact advised against it in my conclusion. My article was published with a prior day close of $203.70. Three days later, two days after earnings, the stock was at $209.60. I stated in my warning that the wrong earnings news could lead to a $40 decline in Tesla shares. So my warning was actually fair. The stock ended up $6 in three days, versus what could have been $40 of downside. The risk/reward just wasn’t there. Again, I’ve been bullish for a while, and I just wanted to clear up this point because a lot of comments I have received seemed to miss the point.

The latest short interest update:

Those that have followed my coverage of Tesla know that short interest is one thing I really follow. I really pushed the case for a short squeeze in mid January, and that was right before the Q4 deliveries pre-announcement. At that point, more than 25.8% of the outstanding share count and 37.7% of the float (according to Yahoo! Finance share numbers) was short. Then we got the positive news, and shares were off to the races. You would normally think that many shorts would have covered on that news.