‘Crushed like a bug’: Distressed bond manager makes multi-billion dollar options bet against Tesla

Scott Burg, the chief investment officer of Deer Park Road Management Co, who predicted Tesla would be “crushed like an insect” in a 2020 tweet, bought put options on nearly 4.8 million Tesla shares during the second quarter, according to a regulatory filing this week, Bloomberg and Barron reported.

The stocks covered by the put options had a face value of around $3.2 billion at the end of June, although the amount at risk for the company may be much lower.

Deer Park chief investment officer Scott Burg told Barron’s that Tesla’s put option position is 0.1% of its portfolio. It’s not that much, and it indicates that Deer Park probably paid less than $1 per share representing the put options.

After escalating criticism of Tesla and CEO Elon Musk on social media this year, Burg deleted his Twitter account Wednesday.

Deer Park did not return messages seeking comment, nor did Tesla, which disbanded its media relations department. Burg doesn’t consider himself a big Tesla bear. But he told Barron’s he was bearish on the overall economy and the consumer. He expects Tesla stock to struggle, but like any other consumer discretionary stock this coming year.

The Tesla bet is one of several bearish bets Deer Park made earlier this year using put options, which increase in value when an underlying asset declines. In the first quarter, Deer Park acquired put options on the S&P 500 index with a face value of approximately $20 billion, more than four times the company’s net assets of $4.6 billion. end of March.

STS Master, the company’s flagship structured credit fund, gained 8.65% in the first half of 2022, with nearly all of the gains coming from options, swaps and hedging, according to company documents obtained by Bloomberg. .

STS Master’s fortunes abruptly reversed in July, when the fund fell around 6.5%, putting it on track for its worst quarter in history if results don’t improve by then. the end of September. The loss reduced the fund’s gain in 2022 to 2.2%, the company told clients in an email Friday, after Bloomberg reported on the short bet.

Shares of Austin, Texas-based Tesla fell 38% in the second quarter on growing concerns about production outages at the electric vehicle maker’s Shanghai plant. The stock has rebounded strongly since June 30, jumping 35% through Thursday’s close.

Shares of Tesla Inc. TSLA,
slipped to $890.00 on Friday in what turned out to be a dismal trading session for the stock market, with the NASDAQ Composite Index COMP,
down 2%, ending at 12,705.22 and the Dow Jones Industrial Average DJIA,
down 0.86% to 33,706.74. Friday saw Tesla’s fourth straight day of losses. Tesla Inc. closed $353.49 lower than its 52-week high of $1,243.49, which the company hit on November 4.

Deer Park focuses primarily on distressed securities, including mortgages and corporate debt, although it also has some leeway to invest in stocks and equity derivatives, according to a filing.

Little known outside of Wall Street, Deer Park has generated average annual returns of around 19% since founder Michael Craig-Scheckman, one of the first employees of Izzy Englander’s Millennium Management, launched STS Master during the 2008 financial crisis.

Twitter Inc. TWTR,
himself may have been a catalyst for Deer Park to take on Tesla’s put options in the second quarter.

In April, Musk made an unsolicited bid to acquire the social media platform for $44 billion, to try to walk out of the deal after a market rout crushed tech stocks. The two sides are now embroiled in a court battle that has weighed on Tesla’s shares, in part because Musk sold billions of dollars of his personal stake in the event he was forced into the deal.

“Do you know what a death spiral is? Coming soon… $TSLAQ”, Burg tweeted on May 20, when shares of Tesla, which trade under the symbol TSLA, fell 6.4%. Stock exchanges usually add the letter Q to a company’s symbol when it files for bankruptcy protection.

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