Back in my youth, there used to be such a thing as a three-ring circus.
Not the travelling variety that might appear in a mall parking lot near you, but the kind that you had to go to a hockey/basketball-sized arena to see. The main show would be centered in the middle of the floor.. in the "center ring" ... while on the outskirts, to keep people from being bored in between acts, there would be a continuous flow of smaller performances made by the likes of clowns, jugglers, and plate-spinners, etc.
These smaller shows were meant to distract.
Back on August 7, nearly three weeks ago, Tesla (TSLA) CEO Elon Musk commenced with his now-famous tweet storm. In a series of tweets, Musk indicated that he might be taking the firm private, that funding had been "secured," and that all that was now need was a shareholder vote. Oh and the market price of $420 per share was thrown around as well, which would have valued such a transaction at $70 billion.
Speculators and short sellers who felt the squeeze ran the stock up on these tweets. The shares peaked at $387.46. Then, as the days progressed, the stock sold off just as hard as it had increased (bottoming at $288.20, before rising again early last week). What's the big deal about a $99 range over a short period of time anyway? Hmm.
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In truth, the stock has flat-lined for a couple of days now, as investors were left in a state of great inertia provoked by the unknown. Expect that stability to end immediately.
What we now know is that Tesla will not be going private, at least not now. According to The Wall Street Journal, there did exist the potential for a deal last week that would have involved several deep-pocketed investors such as Volkswagen and Silver Lake Partners. The problem for Musk was allegedly that the investors would also wanted their share of say in the company. As the story goes, it was then that Musk pulled the plug. The story of how Tesla got to this point, however, is quite complex.
The Bottom Line
For me, what is clear is to avoid this name completely if one is already flat. Now, the focus for investors will turn in three directions.
These have long been the market focus, if only this were the only issue facing the firm.
Perhaps the worst thing that could happen to Tesla would be turning in a positive quarter. At that point, the firm might be valued more like regular public corporations -- or heaven forbid, a normal automobile manufacturer, facing all of the margin pressures of that industry in general.
The SEC Probe
Can't forget about this. The Securities and Exchange probe could lead anywhere. What the SEC in all probability wants to know is did Elon Musk have a reasonable basis for his "funding secured" tweet, and his insinuated take-out price. On top of that, depending on what the SEC finds, there could be shareholder lawsuits in the offing.
Plainly, I know nothing. What does Jim Cramer tell you about firms going through anything related to "accounting irregularities?" He tells you to stay away. My thought is that the same strategy would apply when it comes to SEC probes. Who needs this headache? We have our own problems without creating more by getting involved in what is impossible to fully analyze.
For those willing to gamble on direction, this is one of the few cases where purchasing options is a bit smarter than selling them. Depending of the speed and size of any move in the last sale of these shares, getting short options on either side of the market could leave the investor having to eat something truly awful. At least a purchase allows that same investor to precisely identify his or her level of risk. Your old buddy is going to play some other game today.
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