The ‘Big Short’ investor just revealed his recent activities in the latest 13F filing for Scion Asset Management. This is the investment fund that he’s managing. It was reported that Michael Burry short Tesla stock again.
According to the filing, as of the end of March 2021, the fund owned bearish puts against 800,100 shares of the electric car maker.
The legendary fund manager has been voicing his concern about Tesla’s lofty valuation publicly in the recent months. At one time, he suggested Elon Musk to issue more shares to take advantage of its insane valuations as well.
Michael Burry Short Tesla: Put Options
What these put options do is to give the holder the right to sell a certain number of shares at a higher price determined at the point of purchase. Investors can cover this position by buying the shares at a lower price at some point in the future.
Basically, holding these put options imply that Burry is bearish on Tesla’s shares. He expects its share price to decline in value in the future.
However, the filing did not disclose when exactly did Burry’s Scion make these bets against Tesla. Nor is it possible to pinpoint at what price are the puts in the money. We can’t tell how much the fund manager paid for them as well.
But based on Tesla’s share price on 31 March 2021 of about US$668 a share, multiplied by the number of shares Burry bet against, the position will work out to be worth about US$534 million.
Well, the bet could have been made when Tesla’s share price skyrocketed to more than US$850 a share. Or it could have been made when the share price was trending lower in the US$550 – US$650 range. We can’t tell exactly from the filing.
Michael Burry Short Tesla: Profiting From His Short Position
Source: Yahoo Finance / Tesla Share Price Chart – 31 Mar 2021
Say we based the share price as at the end of the first quarter, i.e on 31 March 2021. Tesla would have been down 14%, making these options in the profit region.
We have done a more detailed post on why Burry is bearish on Tesla’s lofty valuation. Check out the article here if you are keen to find out more.
Michael Burry short Tesla strategy might have involved various put options at various strikes. Perhaps some of them might have expired also.
Tesla Fundamentals vs Market Expectations
Source: Yahoo Finance / Tesla Share Price Chart – 26 Jan 2021
Looking at the bigger picture, Tesla’s momentum has tapered after surging more than 600% from a year ago. Since hitting an all-time high of US$883 a share in January 2021, Tesla’s share is down 35% based on the latest closing price of US$577 a share.
There’s been a lot of hype in Tesla over the past year. While the company reported a record profit in the first quarter of 2021, its share price has lost steam. It seems to be trending sideways or even towards a lower range.
Tesla’s ability to overcome the industry-wide chip shortage and enhance its manufacturing capability is commendable. But the company will now need to contend with the lofty expectations that the market has brought its share price to where it is today.
Michael Burry Short Tesla: Moving Ahead
Source: Twitter / Mike Burry
This is in fact not the first time that Burry has made a bet against Tesla. Back in early December last year, he tweeted that he was short on the company’s shares as well. He commented once that Tesla’s share price was at a “ridiculous” level previously.
Well, I guess now the market is starting to assess Tesla in a more fundamental manner. At the same time, investors are weighing the concerns of inflation and the ongoing pandemic situation as well.
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