Tesla continues to be the largest equity short in the domestic market with $19.2 billion of short interest. TSLA recently hit a short interest level of $19.95 billion and is poised to be the first stock to hot the $20 billion short interest threshold. NKLA short interest is $390 million, the fourth largest short in the Construction machinery & Heavy Truck Sector. Both Nikola Corp (NKLA) and Tesla Inc (TSLA) are continued short squeeze candidates for different reasons.
The reason behind Tesla’s short squeeze is obvious and straight forward, large mark-to-market losses are forcing out some short sellers as they hit their loss limit thresholds. Tesla shorts are down -$18.08 billion in year-to-date net-of-financing mark-to-market losses. 43% of those losses occurred in just over five weeks of trading with -$3.71 billion on mark-to-market losses in June and -$4.08 billion of mark-to-market losses in July.
Short sellers have bought-to-cover 1.70 million shares, worth $2.32 billion, over the last month as Tesla’s stock price rose +44%. Over the last week, we saw a lull in short covering with only 98 thousand shares covered which is still worth a significant $133 million. If Tesla’s stock price continues to trend upward, we expect even more short covering as mark-to-market losses accumulate. Traders can expect a squeeze on their shoulder from their controllers to trim or close out their positions as their Tesla losses breach risk limits.
The Nikola short squeeze comes from a different bearing. While the most obvious short squeeze is due to mark-to-market losses resulting from an increase in the shorted stock’s price, a potentially more slippery short squeeze occurs when a stock’s stock borrow financing rates increase dramatically. Unless a trader uses a system like S3’s Blacklight SaaS platform or Black App they may not realize the magnitude that the associated stock borrow cost of their trade is eating into their profits or adding to their losses.
In Nikola’s case, stock borrow fees have skyrocketed and have hit the 600% fee level on outstanding short positions with new stock borrows ranging between 850% – 950% fee.
Nikola short sellers are down -$287 million In net-of-financing losses for the year. Recently, shorts were down -$309 million in June but up +$38 million in July. But July’s net-of-financing profit can be misleading for many traders who do not net their stock borrow costs against their profits & losses. With stock borrow rates at the 600% fee level, Nikola shorts paid out $66 million of stock borrow fees in July which offset most of the $104 million of mark-to-market profits they earned. A trader who just looked at their gross profits would have seen a +24% return in their NKLA trade so far in July, but they were only up 9% net of their financing costs. Just like Fenway’s Green Monster, NKLA’s high stock borrow costs will turn a home run into a double.
On July 8th, NKLA shorts paid -$6,510,830 in stock borrow costs on their $390,104,110 position. If we keep these numbers constant and extrapolate these figures forward, in sixty days NKLA shorts would have paid just over -$390 million in stock borrow financing costs. Which means that if NKLA’s stock price remains flat over the next two months, it impossible for shorts to ever make a profit in the trade.
If NKLA’s stock borrow fees remain at current levels, short sellers need NKLA’s stock price to decline by -1.67% every day just to recoup their financing expenses before they can make a penny of profits. If NKLA’s stock price appreciates, short sellers will be big losers on both sides of the short sale profit\loss calculation – unless NKLA’s stock price trends downward a short squeeze is inevitable.
We are in the middle of a TSLA short squeeze and on the precipice of a NKLA short squeeze. It looks like electric and hydrogen car manufacturers are the silent short seller killers in the market today.
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