[JoeH]

I purchased a fair number of TSLA when they IPO'd, for a bit lower than the actual IPO price of $17. A little over a year ago, my brokerage offered to borrow my shares at 4% annual interest (paid on a monthly basis). I was told that I would retain the ability to trade the stock at any time, but I gave up my shareholder voting rights while the stock was "loaned" out.

I had never heard of that happening to small individual investors like me, and at that time I looked into it and learned that this was typically done because there was a lot of interest in short sales for the stock and there wasn't enough borrowable stock to cover demands.

I renew the loan agreement on a monthly basis and in March 2013 I was offered an increase from 4% to 6% interest for the loan of my shares, indicating that short-sellers were very eager to get their hands on TSLA stock.

I'm curious to see if today's activities cause my June offer to drop my interest rate or if the offer just expires altogether. I would guess that at minimum I'll see a lower interest rate.

[revelation]

Just to offer perspective, the interest to borrow shares of Tesla as of 2nd May was 46.10%. It was 85% as of 26th March.

[pyoung]

What?!!! Just so I get this straight. In order to short the stock you have to pay an annual interest rate of 46% of the stock value? I realize most shorts are probably only in it for short term, but that is still pretty insane.

[olympus]

Not sure if you're joking or not, but I'll offer a quick explanation. Interest in this context does not mean interest on a loan, but rather how many people are interested in shorting the stock. The 46% short interest meant that almost half of Tesla's stock was shorted. To put it another way, 46% of Tesla's stock was loaned out from various parties to sell to other various parties. This is a bad thing for the short sellers because they now have to pay more for their borrowed stock than they got for selling it in the first place. It's like owing more for your car than the car itself is worth.

[jamesaguilar]

Probably isn't joking. That is also the claim I initially thought was being made.

[pyoung]

Got it, thanks. Do brokerages charge interest rates for allowing shorts to borrow the stock?

[revelation]

olympus actually misunderstood me, and you were spot on :)

Brokers do charge interest rates and the rates for TESLA really were 45% (current) and 85% (once upon a time) annualized, mostly because of a deficiency in available shares. At that point it was costing 60c per share a week just to keep your short position.

Theres plenty of discussion here: http://www.teslamotorsclub.com/showthread.php/15183-Cost-to-...

[olympus]

Oh, wow. With numbers that high it never crossed my mind that you were talking about loan interest. Normally the interest you pay to short a stock is single digits, and if you have enough money it can be <1%.

I was thinking of this: http://www.investopedia.com/terms/s/shortinterest.asp

You can see the short interest in TSLA here published twice a month: http://www.nasdaq.com/symbol/tsla/short-interest which is very high compared to AAPL's short interest: http://www.nasdaq.com/symbol/aapl/short-interest which hovers around one day to cover.

[mynameishere]

If you sell puts against a short position from May 8 to May 17 (strike: 55.00, price: ~3.40), you can make >5 percent in 9 days. I'm guessing that most of the people borrowing shares at that rate are selling straddles to retail that make the overall position look less crazy.

http://finance.yahoo.com/q/op?s=TSLA+Options

...the implication is that unhedged longs are carrying the real risk.

[pyoung]

So you are saying that a lot of the short interest is coming from people hedging their long bets?

I can somewhat relate to why one would take this strategy, as Tesla is getting a lot of hype, implying that the stock might break out (or already did, currently at $71), but they are also in a fairly precarious financial situation, with a ton of debt. Elon himself warned that if the company didn't get to positive cash flow it was likely they would go under. Still it seems like a high price to pay for a hedge, wouldn't it be simpler (and possibly cheaper) just to reduce your long position?

[JPKab]

Do you have a recommendation for a good reference to learn all this lingo? I understand what a short is, but WTF is a 'put'? 'Straddles'??? 'Unhedged longs'?

[paddy_m]

A put is an option that gives you the right to sell a stock to someone by a specified date at a specified price. If you buy a put, you are betting the stock price will go down.

A straddle involves buying both a call and a put. If a stock is trading at 10, and you buy a PUT at 8 and a call at 12, you make money if the stock goes above 12 or below 8, between that, you eat the option price. Basically a straddle is betting on volatility.

You can also sell a straddle, sell a put and sell a call, and bet that stock will remain at the same price.

[mynewwork]

http://www.investopedia.com/ is a decent resource for the beginner to understand terminology.