On August 7th, 2018, Elon Musk claimed on Twitter that he had secured funding to take Tesla private. On that day, Tesla stock price jumped up from $342 to $380 per share. Why did the financial market react positively to that news? What happened to the short sellers of Tesla stocks during that time? Recall that Musk is the founder of Tesla and was involved with the corporation’s day-to-day operations.
On August 7th, 2018, Elon Musk tweeted "Am considering taking Tesla private at $420. Funding secured."
Elon Musk being the founder and CEO of Tesla, investors and traders had a reason to believe that the information coming from him was genuine.
The then current market price of Tesla was around $340, which means Tesla was trading at a discount compared to the price quoted by Musk on twitter. So, the investors and traders started buying Tesla so that they could sell the shares at a higher price. This buying pressure increased the share price.
A sudden spike in the share price created a huge loss to the short sellers. Short sellers had to cover their positions at a loss. Many would have got a margin call because of the sudden increase in the share price.
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