'Squashed like a bug': distressed bond manager makes multi-billion dollar bet against Tesla

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

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

The stock backed by the puts had a face value of about $3.2 billion at the end of June, although the risk the company faces may be much lower.

Scott Burg, Deer Park’s chief investment officer, told Barron that the Tesla put option position was 0.1% of his portfolio. That’s not much, indicating that Deer Park probably paid the less than $1 per share the puts represented.

After intensifying criticism of Tesla and CEO Elon Musk on social media this year, Burg his Twitter account Wednesday.

Deer Park did not return messages requesting comment, nor did Tesla, which has dissolved its media relations department. Burg doesn’t consider himself a big Tesla bear. But he told Barron’s that he is bearish about the general economy and the consumer. He expects Tesla stocks to struggle in the coming year, but just like any other consumer durables.

The Tesla bet is one of several bearish bets Deer Park made earlier this year using puts, which rise in value when an underlying asset falls. In the first quarter, Deer Park acquired puts on the S&P 500 index with a face 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 flagship structured credit company, gained 8.65% in the first half of 2022, with nearly all gains coming from options, swaps and hedges, according to company documents obtained by Bloomberg.

STS Master’s fortunes returned sharply in July, when the fund plunged about 6.5%, heading for its worst quarter ever if results don’t improve by the end of September. The loss reduced the fund’s gains to 2.2% in 2022, the company told customers in an email on Friday, after Bloomberg reported on the short bet.

Shares of Austin, Texas-based Tesla plunged 38% in the second quarter on mounting concerns over production stoppages at the electric vehicle manufacturer’s factory in Shanghai. The stock has recovered strongly since June 30, rising 35% to close on Thursday.

Shares of Tesla Inc. TSLA,
slumped to $890.00 Friday, on what turned out to be a bleak trading session for the stock market, with the NASDAQ Composite Index COMP,
declining 2%, to end at 12,705.22 and the and Dow Jones Industrial Average DJIA,
decreased by 0.86% to 33,706.74. Friday saw Tesla’s fourth straight day of losses. Tesla Inc. closed $353.49 from its 52-week high of $1,243.49, which the company reached on Nov. 4.

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

Little known outside of Wall Street, Deer Park has generated an average annualized return of about 19% since founder Michael Craig-Scheckman, one of the first associates of Izzy Englander’s Millennium Management, started STS Master during the 2008 financial crisis.

Twitter Inc. TWTR,
itself may have been a catalyst for Deer Park to load Tesla 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 pull out of the deal after a market-shattering technology stock crashed. The two sides are now embroiled in a legal battle that has weighed on Tesla stock, in part because Musk sold billions of dollars of his personal stake in case he was forced to close 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, fell 6.4%. Stock exchanges usually add the letter Q to a company’s ticker when it files for bankruptcy protection.

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