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Summary: Shorting stocks can be a solid trading strategy for investors who anticipate a decline in a company’s stock price. In this case, the most convenient way to short Tesla stock is through a reputable online broker like eToro.
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About Tesla
Tesla is a renowned American electric vehicle and clean energy company led by Elon Musk. Since its inception, the company has revolutionized the automotive industry with its innovative electric vehicles and sustainable energy solutions. Its stock (NASDAQ: TSLA) has experienced significant volatility due to investor enthusiasm, market speculation, and Elon Musk’s unpredictable behavior.
What is short selling?
Short selling (shorting) is a trading strategy where investors bet against the future price of a stock. Unlike traditional investing, where investors buy low and sell high, short sellers aim to profit from a decline in a stock’s price. They borrow shares from a broker, sell them at the current market price, and hope to buy them back later at a lower price, returning the shares to the broker and pocketing the difference as profit.
Traditional shorting
In traditional shorting, investors borrow shares from their broker and sell them on the open market. If the stock price decreases as anticipated, they can repurchase the shares at a lower price, return them to the broker, and profit from the difference.
However, if the stock price rises instead, short sellers face potential losses, as they must buy back the shares at a higher price to close their positions.
What are financial derivates?
Another way to short Tesla stock is through derivatives such as options, swap contracts, and futures contracts. Options give investors the right, but not the obligation, to buy or sell a stock at a predetermined price within a specified timeframe.
Put options allow investors to profit from a decline in Tesla’s stock price, as they gain value when the stock price falls below the option’s strike price.
On the other hand, futures contracts obligate the buyer to purchase or sell Tesla stock at a predetermined price on a future date, providing an opportunity to profit from price movements without owning the underlying asset.
How to short Tesla stock: Step-by-step
If you’re looking to short Tesla stock, you can follow our step-by-step guide in the following section for a smooth and convenient process.
Step 1: Choose the right broker
To short Tesla stock, you’ll need to open an account with a brokerage platform that offers short-selling services. Our go-to option is eToro, a popular online trading platform known for its user-friendly interface and diverse range of financial instruments, such as options and CFDs (not available in the US).
- Commission-free stock trading;
- Access to over 2,000 stocks from 17 different exchanges;
- Limited margin accounts;
- Charting tools;
- A user-friendly platform that simplifies the trading experience.
Disclaimer: 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. This content is not intended for US users. eToro USA LLC does not offer CFDs, only real Crypto assets, Stocks and ETFs are available.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
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eToro USA is registered with FINRA for securities trading.
Step 2: Fund your account
Once your account is verified, deposit funds into your newly made account to cover the margin requirements for short-selling Tesla stock. Margin requirements vary depending on the broker and the stock being shorted, so make sure you have sufficient funds to support your short position.
Step 3: Open a short position
Navigate to the Tesla stock page on your chosen platform and select Trade. Decide on your option’s expiry date and the strike price. Review the option’s pricing, risk, and other relevant metrics on the selection page. Next, decide how many 100-share contracts you want to buy.
Finally, review your trade’s details and swipe up to confirm the purchase. You can also save it as a draft if you’re hesitant.
Step 4: Manage your option
After purchasing, you can hold until expiry to potentially profit if the stock moves as anticipated. If the market doesn’t move in your favor, your option may close at a partial loss or expire worthless.
If you prefer not to wait until expiry, you can sell your option on the market. Go to your ticket, choose an order type (market, limit, or trigger), set your conditions if opting for a limit order, and wait for a buyer.
Warning
Tesla stock price today
Pros and cons of shorting Tesla stock
Pros
- Potential for profit if the stock price decreases;
- Opportunity to capitalize on overvalued stocks and market downturns;
- Ability to hedge against long positions in a portfolio.
Cons
- Risk of unlimited losses if the stock price rises sharply;
- Exposure to volatility and short squeezes;
- Costs associated with borrowing fees, interest on margin, and trading commissions;
- Need for thorough research and analysis to mitigate risks effectively.
If you’re looking to short stocks of other popular companies like Tesla, feel free to check out our guides on the following:
- How to Short Apple Stock;
- How to Short Amazon Stock;
- How to Short Meta Stock;
- How to Short Microsoft Stock;
- How to Short Nvidia Stock;
- How to Short Alphabet Stock;
Common mistakes when shorting stocks
Some common mistakes to avoid when shorting stocks include:
- Underestimating the potential for volatility and short squeezes;
- Failing to set stop-loss orders to limit losses;
- Neglecting to conduct thorough research and analysis before shorting a stock;
- Overleveraging by borrowing too many shares or using excessive margin.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to short Tesla stock
Can I short Tesla stock if I don't own any shares?
Yes, you can short Tesla stock without owning any shares by borrowing them from your broker.
How much does it cost to short Tesla stock?
The cost of shorting Tesla stock includes borrowing fees, interest on margin, and any trading commissions charged by your broker.
What happens if I can't cover my short position?
If you’re unable to cover your short position, your broker may force liquidate your position to mitigate potential losses.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
-
eToro USA is registered with FINRA for securities trading.
