‘Squashed like a bug’: Distressed bond manager makes a multi-billion options bet against Tesla

‘Squashed like a bug’: Distressed bond manager makes a multi-billion options bet against Tesla

Scott Burg, chief investment officer at Deer Park Road Management Co, who predicted that Tesla would be “crushed like a bug” in a 2020 tweet, bought put options on nearly 4.8 million Tesla shares during the second quarter, according to a regulatory filing this week, Bloomberg and Barron’s reported.

The shares covered by the put options had a par value of about $3.2 billion at the end of June, although the amount the company has at risk could be much less.

Deer Park chief investment officer Scott Burg told Barron that Tesla’s put position represented 0.1% of its portfolio. That’s not much, and indicates that Deer Park likely paid less than $1 per share represented by the put options.

After escalating criticism of Tesla and CEO Elon Musk on social media this year, Burg deleted your twitter account Wednesday.

Deer Park did not return messages seeking comment, nor did Tesla, which disbanded its media relations department. Burg doesn’t consider himself a big Tesla bear. But he told Barron’s he is pessimistic about the general economy and the consumer. He expects Tesla shares to suffer, but just like any other consumer discretionary action in the coming year.

The Tesla bet is one of several bearish bets Deer Park made earlier this year using puts, which increase in value when an underlying asset declines. In the first quarter, Deer Park acquired S&P 500 placements with a par value of about $20 billion, more than four times the company’s net worth of $4.6 billion at the end of March.

STS Master, the company’s flagship structured credit fund, gained 8.65% in the first half of 2022, with nearly all of the gains coming from options, swaps and hedges, according to company documents obtained by Bloomberg.

STS Master’s fortunes reversed sharply in July, when the fund dropped about 6.5%, putting it on track for its worst quarter ever, if results don’t improve by the end of September. The loss reduced the fund’s 2022 gain to 2.2%, the company told clients in an email on Friday, after Bloomberg reported on the short bet.

Shares in Austin, Texas-based Tesla fell 38% in the second quarter amid growing concerns about production disruptions at the electric vehicle maker’s Shanghai plant. Stocks have rallied sharply since June 30, rising 35% through Thursday’s close.

Tesla Inc stock TSLA,
-2.05%
dropped to $890.00 on Friday in what proved to be a dismal trading session for the stock market, with the NASDAQ Composite Index COMP,
-2.01%
falling 2% to end at 12,705.22 and the Dow Jones Industrial Average DJIA,
-0.86%
falling 0.86% to 33,706.74. Friday saw Tesla’s fourth straight day of losses. Tesla Inc. closed $353.49 below its 52-week high of $1,243.49, which the company hit on Nov.

Deer Park primarily focuses on distressed securities, including mortgage-backed and corporate debt, although it also has leeway to invest in equities and equity derivatives, according to a filing.

Little known outside of Wall Street, Deer Park has generated average annual returns of around 19% since founder Michael Craig-Scheckman, an early employee at Izzy Englander’s Millennium Management, started STS Master during the 2008 financial crisis.

Twitter Inc. TWTR,
+0.30%
itself may have been a catalyst for Deer Park to carry Tesla’s put options in the second quarter.

In April, Musk made an unsolicited offer to acquire the social media platform for $44 billion, only to try to back out of the deal after a market defeat crushed tech stocks. The two parties are now embroiled in a legal battle that has weighed on Tesla’s shares, in part because Musk sold billions of dollars of his personal stake in the event he was forced to complete the deal.

“Do you know what a death spiral is? Coming…$TSLAQ,” Burg tweeted on May 20, when Tesla shares, which trade under the ticker TSLA, dropped 6.4%. Stock exchanges typically add the letter Q to a company’s ticker when it files for bankruptcy protection.

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