Tesla Punishes Short Sellers Following Q4 Earnings, ETFs to Watch

“The short squeeze” is a term heard in financial trading where shorting a particular stock turns against the trader. Well, traders shorting Tesla were placed in a boa constrictor-like squeeze after the electric automaker reported its fourth-quarter earnings report.

Per the CNBC report, “Tesla short sellers are now down more than $5.2 billion this year in mark-to-market losses after losing $2.89 billion in 2019, S3 said. Since the stock’s low of $178.97 on June 3, 2019, Tesla short sellers have covered 19.11 million shares, worth $11.1 billion, and are down $12.43 billion in mark-to-market losses, according to S3′s Ihor Dusaniwsky.”

This comes after the company reported fourth-quarter earnings of “$2.14 per share, well ahead of expectations for $1.72 per share. It said it expected positive cash flow and net income on a continuing basis going forward barring one-time production investments, a relief to those who’d poured cash into the young auto company in recent years.”

Who’s taking the brunt of the blow?

“The critics tend to be hedge funds, which try to beat the broader equity market with concentrated portfolios of stocks they like combined with short sales against those they don’t,” the report noted. “Short sellers borrow and then sell shares of a company they think will decline in value. By selling a security at current prices and buying it back later, at a lower price, the investor can turn a profit.”

A few ETFs to watch with holdings of Tesla:

  1. ARK Industrial Innovation ETF (NYSEArca: ARKQ): seeks long-term growth of capital. The fund is an actively-managed fund that will invest under normal circumstances primarily in domestic and foreign equity securities of autonomous technology and robotics companies that are relevant to the fund’s investment theme of disruptive innovation. Most of the fund’s assets will be invested in equity securities, including common stocks, partnership interests, business trust shares and other equity investments or ownership interests in business enterprises.
  2. VanEck Vectors Low Carbon Energy ETF (NYSEArca: SMOG): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Ardour Global Index. “Low carbon energy companies” refers to companies primarily engaged in alternative energy, including renewable energy, alternative fuels and related enabling technologies (such as advanced batteries).
  3. First Trust NASDAQ Clean Edge Green Energy Index Fund (NasdaqGM: QCLN): seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the NASDAQ® Clean Edge® Green Energy Index. The index is designed to track the performance of small, mid and large capitalization clean energy companies that are publicly traded in the United States.

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