Scott Burg, the chief investment officer of Deer Park Road Management Co, who made the prediction that Tesla would be “crushed like a bug” In a 2020 tweet, he bought put options on nearly 4.8 million Tesla shares during the second quarter, Bloomberg and Barron’s reported.
The shares backed by the puts had a face value of about $3.2 billion at the end of June, although the amount the company is risking could be far less.
Scott Burg, Deer Park’s chief investment officer, told Barron’s that the position in Tesla put options accounted for 0.1% of his portfolio. That’s not all that much and suggests that Deer Park likely paid less than $1 per share, which represented the puts.
After escalating criticism of Tesla and CEO Elon Musk on social media this year, Burg deleted his Twitter account Wednesday.
Deer Park did not respond for comment, nor did Tesla, which has dissolved its media relations department. Burg doesn’t see himself as a big Tesla bear. But he told Barron’s he was negative about the broader economy and the consumer. He expects Tesla stock to struggle in the coming year, but just like any other consumer discretionary stock.
The Tesla bet is one of several bearish bets Deer Park made earlier this year with puts that appreciate in value if an underlying asset falls. During the first quarter, Deer Park purchased puts on the S&P 500 index with a face value of about $20 billion, more than four times the company’s net worth of $4.6 billion at the end of March.
STS Master, the company’s flagship structured credit fund, is up 8.65% in the first half of 2022, with almost all gains coming from options, swaps and hedges, according to company documents obtained by Bloomberg.
STS Master’s fortunes were reversed drastically in July, as the fund fell around 6.5%, heading for its worst quarter ever if results don’t improve by the end of September. The loss cut the fund’s 2022 gain to 2.2%, the company told clients in an email on Friday, after Bloomberg reported on the short bet.
Shares in Austin, Texas-based Tesla fell 38% in the second quarter as concerns mounted over production disruptions at the electric vehicle maker’s Shanghai factory. The stock has rallied sharply since June 30, up 35% by the close on Thursday.
Shares in Tesla Inc. TSLA, -2.05%, slid to $890.00 on Friday in what proved a somber trading session for the stock market, with the NASDAQ Composite Index COMP, -2.01%, down 2% fell and ended at 12,705.22 and the Dow Jones Industrial Average DJIA, -0.86%, down 0.86% to 33,706.74. On Friday, Tesla experienced the fourth day of losses in a row. Tesla Inc. closed $353.49 below its 52-week high of $1,243.49 set by the company on Nov. 4.
Deer Park is primarily focused on distressed securities, including mortgage-backed and corporate bonds, although it also has scope to invest in stocks and equity derivatives, according to a filing.
Little known outside of Wall Street, Deer Park has produced average annual returns of about 19% since founder Michael Craig-Scheckman, one of the early employees at Izzy Englanders Millennium Management, founded STS Master during the 2008 financial crisis.
Twitter Inc. TWTR, +0.30% itself may have been a catalyst for Deer Park to charge Tesla put options in Q2.
In April, Musk made an unsolicited offer to acquire the social media platform for $44 billion, only to try to go out of business after a market rout smashed tech stocks. The two parties are now locked in a court battle that has strained Tesla shares, in part because Musk has sold billions of dollars of his personal stake in case he is forced to close the deal.
“Do you know what a death spiral is? Come…$TSLAQ”, Burg tweeted on May 20, as shares of Tesla, which trades under the ticker TSLA, plunged 6.4%. Exchanges typically add the letter Q to a company’s ticker when it files for bankruptcy protection.