Short sellers made a killing Thursday as Tesla (TSLA-3.33%) shares plunged 14%, their steepest single-day drop in over a year, with traders raking in some $4 billion on the bearish bets, per Ortex data.
In all, it made for the second most profitable short-selling day in Tesla history, behind only September 8, 2020, when the company was snubbed from S&P 500 inclusion.
Still, this time, the selloff may carry much bigger implications. An S&P snub is one thing. A feud with President Trump, with his reputation for vengeful behavior, is another — raising the possibility that, beyond the dramatic stock drop, an even more dramatic series of events could play out, reigniting regulatory scrutiny and potentially leaving Musk vulnerable to both cancelled contracts and reignited legal threats.
Now short activity, options data, and trading volumes are offering a peek inside just how seriously Wall Street is taking those threats.
On Thursday, trading volume soared to 275 million shares, a level not seen since Tesla did join the S&P 500 in December 2020. That strongly suggests large institutional players were involved, rather than simple retail sentiment. Earlier in the week, volumes hovered below 100 million. But after a day of rapidly escalating drama between Elon Musk and President Trump, everything changed.
It wasn’t just the shares. Options activity exploded, with a record four million Tesla put contracts traded, or more than four times the daily average, according to Dow Jones data.
In other words, what may have begun as hedging rapidly turned into solid conviction that the stock had room to fall, and fall hard. Danny Kirsch, Piper Sandler’s head of options, suggested that being on the President’s good side had served Musk and his businesses, while being on the President’s bad side could turn tailwinds into headwinds, more or less instantly.
To recap: Elon Musk, seemingly furious over a lack of personally beneficial pork in Trump’s new spending bill, publicly called the legislation a “disgusting abomination.” He then lobbed a wild Epstein-related accusation at Trump on X. Trump fired back by vowing to cancel Musk’s federal contracts, a threat that – for fund managers and other relative whales — may have sounded all too credible. There’s also the implied threat of increased legal scrutiny hitting Musk’s businesses in the wake of the feud.
As Casey Newton of Platformer suggested on Thursday, Musk may have used his position in Trump’s government to slash the budgets of agencies investigating him. Now, with that alliance in ashes, those watchdogs could come roaring back.
“A report by Senate Democrats found that Musk’s cost-cutting measures protected him from up to $2.37 billion in legal liability from US agencies,” Newton wrote. “This is why I could never take seriously reports that Musk planned to step back from politics and become ‘super focused’ on his companies. He was super focused on his companies the whole time.”
Unless Musk knows something the market definitely does not, it’s possible that focus on his companies did shift yesterday, however briefly.
Tesla has long been an unusually sentiment-driven stock. But Thursday’s spike in volume, record bearish positioning, and massive short profits suggest the vibes could be shifting. With nearly 50% of the shares held by institutions, a large-scale exit would be likely to further sink the stock.
While it’s true that passive money is tied to Tesla so long as it’s in the S&P, active managers have more options, literally and figuratively. And what happens from here is anyone’s best guess.
The post Tesla stock short-sellers raked in $4 billion as Elon Musk and Trump broke up appeared first on Quartz.
