Connecticut-based brokerage firm Interactive Brokers is raising the caution flag as Tesla (TSLA) stock continues to slide.
In a memo sent to clients on Tuesday evening, the firm noted that clients holding Tesla stock, options, futures, or other products should expect the margin requirement to increase to 40% from its current 30%. The shift will occur gradually, increasing 1% after Wednesday's close and concluding on Friday, June 7.
The change is meant to protect against volatility "in light of the current trading environment."
It is worth noting that short interest has also surged on Tesla in recent weeks as shares continue to slip, with nearly 30% of its float sold short. The amount of interest puts it in league with beyond Meat (BYND) , Coty (COTY) , and Lyft (LYFT) as one of the most heavily shorted large cap stocks by percentage of float in the market.
$TSLA short interest is $7.2 billion; 37.80 million shares shorted; 28.70% of its float; 0.73% borrow fee. Shares shorted increased by 244k, +0.65%, over the last week https://t.co/ZGjnWYjKHa
— Ihor Dusaniwsky (@ihors3) May 28, 2019
Shares of the Palo Alto-based electric vehicle maker were down about 1% in pre-market, adding to about a 40% loss in share value year to date.
The increase in margin requirement from the Greenwich-based brokerage is the second in less than a year, with the previous increase from 25% to 30% taking effect on July 31, 2018. However, that change was not gradual, according to Reuters.
Following the institution of that requirement, shares counterintuitively rocketed over 27% to the upside over the ensuing week, aided by a relatively strong earnings release on August 1.
The action was quickly reversed as the optimism culminated in CEO Elon Musk's infamous "funding secured" tweet on August 7.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
In the month following the tweet shares retreated about 31% as hopes of private funding came to be entirely unfounded despite the hopefulness of those long the stock.
Elon Musk is dead serious. If you doubt this plan or viability you will lose money. Just a little warning for you. #tesla $tsla
— Ross Gerber (@GerberKawasaki) August 8, 2018
Shares are down over 50% from the high's realized amid the speculation on private funding.
Given Musk's restrictions from the SEC, it is unlikely to see such a scenario come to fruition again, bringing the stock's coming trajectory into question.
However, caution can cut both ways in the coming weeks. With analysts outlining dire bear cases and short sellers becoming increasingly emboldened, many recognize the potential for a squeeze amidst the persistent pressure.
Should results come in "even slightly better than draconian expectations" or announcements are made to bid bulls forward, the stock could be sent higher from a short squeeze, Bank of America analyst John Murphy wrote last week.
It will be important to keep an eye on Tesla announcements, Chinese market updates, and the potential for further email leaks as the company's cold streak amid rampant short interest could lead to a short term squeeze higher.
