In mid-September, Shan City is still muggy.
Zhao Chen learned from Lin Shicheng that after the news spread to Wall Street that investment banks were eager to close their positions, Elon Musk couldn't sit still.
Tesla's stock price fell all the way from 379 US Dollar on August 7 to around 280 US Dollar in mid-September.
Short Sellers has made a lot of money, and the rumors in the market that Era Vanguard is going to clear its positions are getting more and more intense.
If the second Major Shareholder, which holds nearly 10% of the shares, announces the reduction of its holdings at this time, it will be even worse for Tesla.
The message was conveyed by Lin Shicheng.
"Mr. Zhao, Elon Musk wants to have a phone call with you. He is worried that Era Vanguard bought Put Option in preparation for liquidation."
Zhao Chen did not hesitate. "Tell him, you can do it anytime."
The call from Elon Musk came in at ten o'clock in the evening, time Beijing.
It was late at night at Shan City. Zhao Chen was sitting on Study's sofa, with his cell phone on the coffee table, and pressed speakerphone.
"Elon." Zhao Chen's voice was calm.
"Zhao." Elon Musk's voice was a little deeper than usual. He went straight to the topic without any pleasantries.
"I heard that you bought 160,000 copies of Put Option, Strike Price 350 US Dollar. There are rumors in the market that you want to clear out Tesla."
Zhao Chen was silent for a second. "There are many things spreading in the market."
Elon Musk did not answer the call.
There was silence on the other end of the phone for a few seconds, except for the slight sound of electricity.
Zhao Chen could feel that Elon Musk was waiting - waiting for an answer, waiting for an answer that would reassure him.
"Elon," Zhao Chen's voice slowed down a bit,
"I hold 9.88% of the shares of Tesla, 16.6 million shares, cost 292.8 US Dollar.
I invested this money when Tesla was in the most difficult time.
At that time, the stock price was less than 300, everyone was selling, Short Sellers was partying, and the report of Citron dropped the stock price to below 250.
I didn't sell. Not a single share."
Elon Musk still didn't speak.
Zhao Chen continued, "I bought Put Option not to clear my position.
It was to hedge risks. After you posted that tweet on August 7, the stock price rose to 380.
I have no judgment on the matter of privatization, but I know one thing - the stock price has risen too fast and fluctuated too much.
I need a tool to protect my Common Stock position. Put Option is that tool."
There was a soft breathing sound on the other end of the phone, as if Elon Musk was digesting these words.
"If I want to clear out my inventory,"
Zhao Chen's voice is slower,
"I will not spend 160 million US Dollar to buy Put Option. I will sell the stock directly on the market.
16.6 million shares, calculated as 280 US Dollar, can recover 4.6 billion US Dollar. I don't need Put Option to protect me.
I need Put Option to protect Tesla - to prevent me from being forced to sell if the stock price plummets."
Elon Musk finally spoke. "You don't know how to sell?"
Zhao Chen said:
"I will not sell Common Stock 16.6 million shares, not even one. I promise you."
There was silence on the other end of the phone for about five seconds.
Then Elon Musk said something, his voice was much softer than before. "Zhao, thank you."
Zhao Chen said, "You're welcome. Elon, I invested in Tesla because I believe you can make this company the most valuable company in the world."
Not because I need short term returns.
Your private tweets got you into trouble, the SEC is investigating you, Short Sellers is at Short Selling you, and the media is badmouthing you. But none of that matters.
What matters is when the production capacity of Model 3 can be ramped up."
Elon Musk was silent for a while. "It's crawling. Very quickly."
Zhao Chen said, "I know. So I won't sell it."
After hanging up the phone, Zhao Chen put the phone on the coffee table and leaned on the sofa.
Su Wantang came out of the bedroom, holding a cup of tea in his hand and placing it in front of him. "Elon Musk?"
Zhao Chen nodded. "He is worried that we have to clear the warehouse."
Su Wantang sat down next to him. "What did you say?"
Zhao Chen picked up the teacup and took a sip. "Tell him I won't sell it."
Su Wantang looked at him without asking why.
She just sat quietly, listening to the cicadas chirping outside the window with him.
At the same time, Zhao Chen is also planning another thing - closing the position Put Option.
Investment banks are rushing to close their positions because they are short Tesla.
And Zhao Chen also knows that this wave of decline is not over.
Tesla's bad news is far from over--
Model 3 Capacity Ramp-Up has been repeatedly delayed, and the weekly production capacity of Fremont Factory has always hovered around 2,000 units, which is far lower than the 5,000 units promised by Elon Musk;
The company suffered a loss of 743 million US Dollar in the second quarter. Cash flow is being consumed at an alarming rate and may exhaust all Cash Reserves before the end of the year;
The SEC's investigation is still escalating, subpoenas have been issued, and Department of Justice has also intervened in the investigation. The Wall Street Journal reported that federal prosecutors are considering filing criminal charges against Elon Musk's privatization statement;
Saudi Sovereign Fund has never publicly expressed support, but instead signed a Investment Agreement contract with another electric car company, Lucid Motors, for more than 1 billion US Dollar;
The Short Selling institution has made a comeback, and the Short Sellers position has returned to the level before the tweet was released.
In addition, Tesla is also facing the pressure of two convertible bonds about to mature--
The conversion price of the 230 million US Dollar bonds due in November is 560.5 US Dollar, calculated based on the current stock price.
Bondholders are more likely to choose redemptions rather than conversions, which would further exacerbate Tesla's Cash Pressure.
Each one of them is pushing the stock price of Tesla downwards.
If he can close the position at the price of 270 US Dollar, 350 US Dollar of Strike Price, and earn 80 US Dollar per share, 16 million shares is 1.28 billion US Dollar.
After deducting the Premium cost of 160 million US Dollar, the net profit was 1.12 billion US Dollar. This was a number that he could not refuse.
Zhao Chen picked up the phone and sent a message to Lin Shicheng:
"Lawyer Lin, tell the investment bank to close the position of 270 US Dollar. All 160,000 shares will be closed. This is the bottom line I can accept."
Lin Shicheng quickly replied, "Received. I'll go talk."
In the next few days, Lin Shicheng negotiated back and forth between the three investment banks.
Michael Chen of Goldman Sachs was the first to let go, followed by James Holbrook of JPMorgan Chase, and Sarah Wu of Morgan Stanley was the last to nod.
The combined floating losses of the Options departments of the three investment banks have exceeded 270 US Dollar. Although closing the position of 270 US Dollar is still a loss, it is at least better than continuing to hold it--
If the stock price falls to 250 or even lower, their losses will be even greater.
Zhao Chen's judgment is right: the stock price will continue to fall.
On September 18, all 160,000 copies of Put Option were closed at a price of 270 US Dollar.
Strike Price 350 US Dollar, settlement price 270 US Dollar, earnings per share 80 US Dollar.
16 million shares correspond to a total profit of 1.28 billion US Dollar. After deducting the cost of 160 million US Dollar Premium, the net profit is 1.12 billion US Dollar.
When Lin Shicheng reported on the phone, there was a hint of excitement in his voice.
"Mr. Zhao, all positions have been closed. The funds have been returned to the account of Era Vanguard."
Zhao Chen said, "Okay. Thank you for your hard work."
The position is closed, which can be regarded as a shot in the arm for the bulls of Elon Musk and Tesla.
At least the second Major Shareholder will not reduce its holdings in the short term, and the Sword of Damocles hanging over the heads of the bulls has completely disappeared.
Next, it's time for them to fight back.