'Squashed like a bug': Distressed bond manager makes multibillion-dollar bet against Tesla

Scott Berg, chief investment officer of Deer Park Road Management Co, who made the prediction that Tesla would be “squished like a bug” in a 2020 tweet bought put options on nearly 4.8 million Tesla shares in the second quarter, according to regulatory submission this week, Bloomberg and Barron’s reported.

The shares covered by the puts had a nominal value of about $3.2 billion at the end of June, although the amount the firm has at risk may be much lower.

Deer Park Chief Investment Officer Scott Berg said Barron’s the Tesla put options position amounts to 0.1% of its portfolio. That’s not all that much, and indicates that Deer Park probably paid less than $1 per share representing the puts.

After intensifying criticism of Tesla and CEO Elon Musk on social media this year, Berg deleted his Twitter account Wednesday.

Deer Park did not respond to messages seeking comment, nor did Tesla, which has disbanded its media relations department. Berg is not considered a big Tesla bear. But he said Barron’s he is bearish on the overall economy and the consumer. He expects Tesla stock to struggle, but just like any other consumer discretionary stock over the next year.

The Tesla bet is one of several bearish bets Deer Park made earlier this year, using puts that increase in value when the underlying asset declines. In the first quarter, Deer Park acquired about $20 billion worth of S&P 500 shares, more than four times the firm’s net assets of $4.6 billion at the end of March.

STS Master, the firm’s flagship structured credit fund, gained 8.65% in the first half of 2022, with almost all of the gains coming from options, swaps and hedging, according to company filings obtained by Bloomberg.

STS Master’s fortunes turned sharply in July when the fund tumbled roughly 6.5%, putting it on track for its worst quarter ever if results don’t improve by the end of September. The loss cut the fund’s 2022 gain to 2.2 percent, the firm told clients in an email Friday after Bloomberg reported the short bet.

Shares of Austin, Texas-based Tesla plunged 38% in the second quarter amid growing concerns about production disruptions at the electric vehicle maker’s factory in Shanghai. The stock has rebounded sharply since June 30, jumping 35% by Thursday’s close.

Shares of Tesla Inc.

fell to $890.00 on Friday in what turned out to be a gloomy trading session for the stock market, with the NASDAQ Composite Index

falling 2% to end at 12,705.22 and the Dow Jones Industrial Average

down 0.86% to 33,706.74. I saw Friday Fourth straight day of losses for Tesla. Tesla Inc. closed $353.49 short of its 52-week high of $1,243.49, which the company hit on Nov. 4.

Deer Park focuses primarily on distressed securities, including mortgage and corporate debt, although it also has leeway to invest in equities and equity derivatives, according to the filing.

Little known outside of Wall Street, Deer Park has generated an average annual return of about 19% since founder Michael Craig-Sheckman, one of the first employees at Izzy Englander’s Millennium Management, launched STS Master during the 2008 financial crisis.

Twitter Inc.

itself may have been the catalyst for Deer Park to accumulate Tesla put options in the second quarter.

In April, Musk made an unsolicited bid to acquire the social media platform for $44 billion, only to try to back out of the deal after a market rout crushed tech stocks. The two sides are now engaged in a legal battle that has weighed on Tesla’s stock, in part because Musk has sold billions of dollars of his personal stake in case he is forced to complete the deal.

“Do you know what a death spiral is? Expect…$TSLAQ,” Burg tweeted on May 20, when shares of Tesla, which trades under the symbol TSLA, fell 6.4%. Stock exchanges typically add the letter Q to a company’s ticker when it files for bankruptcy protection.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *