Can The 'Musk Put' Work As Well As The 'Bernanke Put'?
Joel Elconin is the co-host of Benzinga's #PreMarket Prep, a daily trading idea radio show.
Tesla Motors Inc (NASDAQ: TSLA) shares were trading higher by $2.50 at $240.67 in Thursday's session. Earlier, the company announced a $500 million common stock offering or 2.1 million shares.
On most occasions when a company announces a stock offering, it has a negative impact on an issuer's share price. The reason for this being the offering of more shares dilutes or reduces the value as each outstanding share will now represent a lower percentage of the current. Typically, offerings are executed at a discount to the current price in order to attract buying interest.
However, the offering from Tesla came with one caveat: Elon Musk has indicated "preliminary interest" in purchasing up to 83,974 shares of the offering. The move harkens back to the early days of QE, when investors put faith in the "Bernanke put." In other words, it reduced the fear of investing in the market if the economy showed signs of weakening Bernanke would institute another round of QE, which he did on two more occasions.
Thus, investors are shrugging off the normally dilutive effect of the offering and rallying the issue in today's session. After a higher open, Tesla rallied to $246.48 before reversing course and is now drifting toward the low for the session ($239.55) as shareholders reevaluate the true impact of the offering on the current share price.
Disclosure: The author has a long put position in Tesla.
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