‘Crushed like a bug’: Battered bond manager bets multibillion-dollar options against Tesla

Scott Burg, the chief investment officer of Deer Park Road Management Co, who made the prediction that Tesla would be “squeezed like a bug” 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’s reported.

The shares covered by the sales had a nominal value of about $3.2 billion at the end of June, although the amount the company is at risk may be much lower.

Deer Park Chief Investment Officer Scott Burg told Barron’s that his Tesla put options position amounted to 0.1% of his portfolio. That’s not that much, and indicates that Deer Park likely paid less than $1 per share representing the seats.

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

Deer Park did not respond to messages seeking comment, nor did Tesla, which disbanded its media relations department. Burg doesn’t consider himself a big Tesla bear. However, he told Barron’s that it is dangerous for the overall economy and the consumer. He expects Tesla stock to struggle, but like any other consumer discretionary stock this year next year.

The Tesla bet is one of several bearish bets Deer Park made earlier this year using bets, which rise in value when an underlying asset declines. In the first quarter, Deer Park acquired S&P 500 trades with a nominal value of about $20 billion, four times the company’s net assets of $4.6 billion at the end of March.

STS Master, the firm’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 hedges, according to company documents obtained by Bloomberg.

STS Master’s fortunes reversed sharply in July, when the fund fell about 6.5%, putting it on track for its worst quarter ever if results don’t improve by the end of September. The loss reduced the fund’s 2022 profit to 2.2%, the firm told clients in an email on Friday, after Bloomberg reported on the short wager.

Shares of Austin, Texas-based Tesla plunged 38% in the second quarter amid growing concerns about production disruptions at the electric vehicle maker’s Shanghai plant. The stock has rebounded sharply since June 30, rising 35% through Thursday’s close.

Shares of Tesla Inc. TSLA,
fell to $890.00 on Friday in a dismal session for the stock market, with the NASDAQ Composite Index COMP,
down 2% to end at 12,705.22 and the DJIA and Dow Jones industrial average,
down 0.86% to 33,706.74. Friday marked Tesla’s fourth consecutive day of losses. Tesla Inc. closed $353.49 off its 52-week high of $1,243.49, which the company hit on Nov. 4.

Deer Park focuses primarily on distressed securities, including mortgage-backed loans and corporate debt, though it also has room to invest in equities and equity derivatives, according to a filing.

Little known outside Wall Street, Deer Park has averaged annual returns of about 19% since founder Michael Craig-Scheckman, an early employee at Izzy Englander’s Millennium Management, launched STS Master during the 2008 financial crisis .

Twitter Inc. TWTR,
itself may have been a catalyst for Deer Park to load Tesla’s 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 back out of the deal after the market rout crushed tech stocks. The two parties are now embroiled in a legal battle that has weighed on Tesla shares, in part because Musk has sold billions of dollars of his personal stake in case he is forced to complete the deal.

“Do you know what a death spiral is? Here comes…$TSLAQ,” Burg wrote on Twitter on May 20, when shares of Tesla, which trades under the ticker symbol TSLA, fell 6.4%. Stock exchanges typically add the letter Q to a company’s ticker when it files for bankruptcy protection.

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