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‘Squashed like a bug’: Distressed-bond manager makes a multibillion-dollar options bet against Tesla

Scott Burg, the chief investment officer of Deer Park Road Management Co., who made the prediction that Tesla would be “squashed like a bug” in a 2020 tweet, bought put options on almost 4.8 million Tesla shares during the second quarter, according to a regulatory filing this week, Bloomberg and Barron’s reported.

The shares
TSLA,
-2.05%

covered by the puts had a face value of about $3.2 billion at the end of June, though the amount the firm has at risk may be far lower.

Burg reportedly told Barron’s the Tesla put-options position amounted to 0.1% of his portfolio. That isn’t all that much, and indicates Deer Park probably paid the less than $1 per share represented.

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

Deer Park didn’t return messages seeking comment, nor did Tesla, which has disbanded its media-relations department. Burg doesn’t consider himself a big Tesla bear. But he did tell Barron’s he’s bearish on the overall economy and the consumer. He expects Tesla’s stock to struggle, alongside other consumer-discretionary stocks, in the coming year.

The Tesla wager is one of several bearish bets Deer Park made earlier this year using puts, which increase in value when an underlying asset declines. In the first quarter, Deer Park acquired puts on the S&P 500 index
SPX,
-1.29%

with a face value of about $20 billion, more than four times the firm’s net assets of $4.6 billion at the end of March.

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

STS Master’s fortunes reversed sharply in July, when the fund tumbled roughly 6.5%, putting it on track for its worst quarter ever if results fail to improve by the end of September. The loss pared the fund’s 2022 gain to 2.2%, the firm told clients in an email Friday, after Bloomberg reported on the short wager.

Shares of Austin, Texas–based Tesla tumbled 38% in the second quarter amid mounting concerns about production disruptions at the electrical-vehicle maker’s factory in Shanghai. The stock has rebounded sharply since June 30, surging 35% through Thursday’s close.

Shares of Tesla slipped to $890 on Friday in what proved to be a dismal trading session for the stock market, with the Nasdaq Composite Index
COMP,
-2.01%

falling 2% to end at 12,705.22 and the and Dow Jones Industrial Average
DJIA,
-0.86%

falling 0.86% to 33,706.74. Friday wass Tesla’s fourth consecutive day of losses. Tesla closed $353.49 short of its 52-week high of $1,243.49, which the company reached on Nov. 4.

Deer Park focuses mainly on distressed securities, including mortgage-backed and corporate debt, though it also has leeway to invest in stocks and equity derivatives, according to a filing.

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

Twitter Inc.
TWTR,
+0.30%

may have been a catalyst for Deer Park to load up on Tesla put options in the second quarter.

In April, Musk made an unsolicited bid to acquire the social-media platform for $44 billion, only to try to pull out of the deal as a market rout crushed tech stocks. The two parties are now engaged in a court battle that has weighed on Tesla shares, in part because Musk sold billions of dollars’ worth of his personal stake in case he’s forced to complete the deal.

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

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