Tesla Motors (Nasdaq: TSLA) stock attracts short sellers

Despite the high tech electric propulsion and the lightweight of the aluminum body of the Tesla S Model, Tesla Motors stock is under plenty of pressure by short sellers. Question is, what does this mean for investors?

[Market Close Update: TSLA closed at 27.58] But based on the short-interest ratio, Tesla (Nasdaq: TSLA) stock still has about 10.6 days to cover all of the outstanding short positions.

When a trader is short a stock, he profits when the stock price goes down, and suffer losses when the stock price goes up. The total number of short shares in a stock is called the "short interest".

Stocks with high short interest are often very volatile and are well known for making explosive upside moves, known as a short squeeze. Stock traders will often flock to such stocks for no reason other than the fact that they have a high short interest, and the price can potentially move up very quickly as traders with open short positions move to cover.

In the case of every high, short-interest stock like Tesla, high short interest can mean one of two things. The shorts are right about the fundamental outlook; so the stock is being looked unfavorably and will go down. Or the short sellers are wrong, and any upside news will literally squeeze them into buying back their shares, thus exacerbating the move to the upside. This is an indicator of upside potential in a stock and the higher this number, the more powerful the upside potential a stock has if a short covering should be triggered.

Which camp Tesla stock is really in is up for debate

On the fundamental side, Tesla is not making any money yet.

On the short-interest side, HighShortInterest.com provides a convenient sorted database of stocks which have a short interest of over 20 percent; and Tesla stock is on that list. Additional key data such as the float, number of outstanding shares, and company industry is also displayed.

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Comments

Did you see that short squeeze that happened today?

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