I shorted Tesla’s stock when it hit $1,897 a week ago, and it was a horrible decision.
As an IT journalist in South Africa, however, I naturally did not have any real money to invest and I used a demo Webtrader account from Standard Bank to make my play.
With fictional US dollars at my disposal, I used all my knowledge of the electric car market and investment trends – which turned out to be a large bunch of nothing – to short Tesla using a CFD.
A CFD (contract for difference) is a leveraged investment tool which lets you get exposure to the price movements of a share without having to pay the full price to buy the share.
In this case, the CFD was leveraged at 10 to 1. This means I could short 10 Tesla shares while only using $1,897 from my cash balance.
“Bring on the fictional money into my demo account” was the thought process as I clicked the confirm button on the trade window.
Why did I short Tesla?
Well, it had a P/E of over 1,000 (it’s current P/E is 1,141 and it has a Price/Sales ratio of 16).
It had also risen close to 900% over the past 12 months, taking it into the “bubble” zone.
Sure, there is a lot of hype around electric cars and Tesla also recently announced a stock split – which will take place tomorrow, and has shown to help drive prices up – but surely the price was too high?
I mean, Tesla’s share price has risen so quickly that it is now the most valuable carmaker in the world. It is even more valuable than Toyota.
Let me repeat: Tesla is more valuable than the company which makes the Corolla and Hilux.
Unfortunately, it seems other investors think a bit differently to me – and Tesla’s share has done nothing but go up since I placed my short.
In seven days, I have gone from being flat (no loss, or gains) at the point at which I placed the short, to being down $3,130.
In rand, that is R53,000 in the hole.
Remember, I only spent $1,897 of my fake money on the CFD – but because it is leveraged I am fully exposed to the change in price.
The two choices now are: hold out and wait for the share price to drop, or close the position and take my losses.
Tesla Short Shorts
Many people are betting, and have bet, against Tesla’s shares and are shorting the company – but to date, Tesla CEO Elon Musk is the only one winning the battle.
In fact, Musk took so much pleasure in short sellers losing money as Tesla’s share price went up that he launched Tesla Short Shorts.
The red satin shorts, with the word S3XY written across the back, were put on sale on Tesla’s website to celebrate Musk’s success against short sellers.
And what do you think happened next?
They sold out of course.
Tesla share price (1 week)
This is an opinion piece, and is in no way intended as financial or investment advice.