How Much Longer Can Short-Sellers Stand Tesla?

NEW YORK (TheStreet) -- As a short-seller, I told myself I was not going to write about Tesla (TSLA) anymore. Same with Amazon (AMZN). There's no point because they can not be measured based on any semblance of a comparable metric.

About one out of every four Tesla shares available for trading is shorted. On paper it doesn't get much better than the short side.

Amazon is beginning to recognize limits, although only time will tell if investors will truly start to care.

But Tesla is now so loved by investors that if CEO Elon Musk announced the company was shutting down the production line so he could fly employees to Mexico for a month-long hiatus, the stock would jump $20 based on the reasoning of improved staff morale.

Building a Tesla battery plant admittedly isn't as absurd as margaritas on the beach, albeit a $30 move higher makes an admirable attempt. Has anyone considered the distraction building said battery factory may cause? I guess that's my job.

I won't bore you with all the details but suffice to say that manufacturing a new product, especially a high-tech product, is incredibly consuming.

Do I think in two or three years the factory will turn into a net positive for Tesla? Maybe. But if we weren't talking about Tesla, a press release about building a battery factory may not move the stock price higher. In fact, for most stocks a similar announcement would be received as partially negative because it highlights a logistics bottleneck holding down revenue and sales.

When all news is fabulous news, I guess it doesn't actually matter what the news is.

TheStreet's Doug Kass said last week he was holding his short position in Tesla through its earnings. As noted, he wasn't alone because about one out of every four shares available for trading is shorted. As a short-seller I was interested in his thinking.

It's about odds, and Kass knows -- as every other short-seller does -- that when the shoe falls, it has a long way down before hitting bottom. Think of it like a casino and the game of blackjack. Sometimes someone will walk in and, regardless if they hit or stand, it will be the right move. The player goes on a hot streak and increases their bets and is winning the most they have ever won.

The casino doesn't enjoy it, but they don't shut the game down either because they know if the player continues long enough they will win it back. I guess, but don't know because I didn't ask, it's why Kass added to his short position Tuesday.

Again using blackjack as an analogy, when you're dealt 11 and the dealer has a six showing you should always double down.

The reason is simple: The odds favor you winning, and the casino will allow you to increase your bet size. It's a rare example when the player has an edge and can bet based on the edge. You don't always win, and when you lose you lose twice as much as you would have otherwise, but if you play the odds enough times you win more than you lose.

On Tuesday, I jumped on the short bus and posted my Tesla short on Twitter (TWTR).

I made a few dollars and called it good. I think the massive short interest is squeezing the daylights out of the shorts -- and if there is one thing I know about the markets, it's that the last move is often a monumental move. I also know when a trending stock fails to make new highs on good news, the trend is likely to end and reverse. I'll post again on Twitter if I short Wednesday.

Was Tuesday's move the final capitulation of shorts throwing in the towel?

Only time will tell, but I wouldn't want to bet get against Kass as I find out.

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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