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Is shorting Tesla stock a good idea?

January 16, 2025

Is shorting Tesla stock a good idea?

What is shorting or short selling?

Shorting a stock, also known as short selling, is a trading move to profit if a stock's price declines. It involves four steps: (1) borrowing the share; (2) selling it; (3) buying it; and (4) returning it to the lender. If the price decreases after the sale, you buy at a lower price, pocketing the difference as profit. If the stock price increases after you sold it, you have to pay more to buy back, incurring a loss. 

Example:

You believe Tesla's stock (currently priced at $413) will decrease in price. You borrow 25 shares from your broker and sell them for $10,325 ($413 x 25 shares). Assume that by the end of March, about two months after the Second Coming of Trump to the White House, the bromance between Trump and Musk begins to flounder or that people smell shit about the prospects of Musk's proxy presidency. Assume that Tesla's stock loses 20% in value, trading at $330 by March 30, 2025. You buy the 25 shares for $8250, and return them. You made $2,075 (20%) in 60 days with zero effort. Assume any other scenario and you will either make more money, break even, or lose a lot of money.

Short selling is risky. Unlike buying a stock (where your maximum loss is the amount you invested), short selling has unlimited risk since a stock's price can theoretically rise indefinitely. If the stock price rises sharply, short sellers may rush to buy back shares to cut losses, further driving up the price in a "short squeeze." Brokers may also charge interest or fees for borrowing shares, which can reduce profits. Shorting typically requires a margin account, and brokers may demand additional funds if the stock price rises significantly (a margin call).

We short stocks on speculation, looking to profit from a stock believed to be overvalued and that will likely decline in value for one reason or another. We see many reasons why Tesla may be grossly overpriced and believe that the Tesla's stock price will massively correct if (and only if) the Second Coming of Trump does not produce the miraculous results the market is pricing in and if institutional investors become disillusioned with the market musketeer, Elon Musk. 

The big risk in shorting Tesla is that if the Trump Musk bromance remains strong and the Second Coming of Trump kicks into high gear, there's no limit to how much higher Tesla's stock price may go. Word to the wise. Short selling is not for everybody. You can lose a lot of money as we have in the past shorting NVIDIA, Meta, and Tesla. 

The future has not been created yet. We are betting on a short term future where Tesla suffers a market correction of 20%. We have no clue of whether such a future will materialize or not. We are taking a significant risk shorting Tesla. We'll see how it pans out. The uncertainty of the future is one of the most entertaining aspects of life as we see it. Can you imagine how incredibly boring life would be in a deterministic universe? We can't.

Now you know it. 

www.creatix.one









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