Like other so-called cult stocks, interest in Tesla and Virgin Galactic is driven by speculation about big future payoffs rather than fundamentals.
The value of short bets against Virgin Galactic hit a record $US500 million ($748 million) on Tuesday after the stock surged to its own all-time high, according to Dusaniwsky. The company’s rally this year has cost short sellers $US345 million in paper losses.
I’m calling it Tesla Junior because it’s showing all the signs of becoming a cult stock on the long and on the short side.
S3 Partners’ Ihor Dusaniwsky
Virgin Galactic is racing against Musk’s space venture SpaceX and Amazon.com CEO Jeff Bezos’ Blue Origin to bring tourists into space, but is the only one of the three whose shares are publicly listed. That makes Virgin Galactic the only option for sharemarket investors who want to buy into the emerging business of space travel.
Traders on Wednesday paid the equivalent of a 34 per cent annual interest rate to borrow Virgin Galactic shares to make new short bets, reflecting a shortage in the shares due to its popularity among short sellers. Short sellers borrow shares and then sell them, expecting to buy them back at a lower price and pocket the difference after paying the stock lender interest.
Underscoring retail investors’ interest Virgin Galactic, the company was the second most traded stock on Fidelity’s online brokerage in recent sessions, with two-thirds of clients buying shares, rather than selling. Orders for Virgin Galactic on Fidelity trailed only Tesla.
Helped by improved profitability, Tesla has seen its stock surge 120 per cent this year, including a 7 per cent jump on Wednesday.
Traders are shorting $US18 billion worth of Tesla’s shares, dwarfing overall short bets against Virgin Galactic. Those bets are equivalent to 15 per cent of Tesla’s float, while short bets against Virgin Galactic are equivalent to 31 per cent of the company’s stock float, up from 7 per cent in November.