How To Profit From The Musk-Twitter Drama No Matter What Happens Next

How To Profit From The Musk-Twitter Drama No Matter What Happens Next
Reda Farran, CFA

over 1 year ago1 min

Mentioned in story

According to regulatory filings that landed after the market closed on Tuesday, Elon Musk has just sold another $6.9 billion worth of his Tesla shares – four months after categorically saying he wouldn’t offload any more of them. That means Musk has now sold around $32 billion worth of the EV maker’s stock in the past 10 months.

The reason for the sale, Musk said, was to avoid a last-minute selloff of Tesla’s shares in case he’s forced to go ahead with his abandoned $44 billion deal to buy Twitter. That’s very possible: the social media company is taking him to court arguing that he’s now obliged to follow through with the agreement. But when one of his Twitter followers asked if he’d buy Tesla’s stock back if he doesn’t sign on the dotted line, Musk responded unequivocally: “Yes.”

That paves the way for a trade that could potentially profit regardless of the outcome. By buying call options on both Twitter and Tesla, you’d be setting yourself to profit in the entirely plausible event that either stock rises. After all, if Musk loses, he’ll be forced to buy Twitter at his agreed price – over 20% more than it’s worth at the moment. And if he wins, he’d theoretically look to buy back $32 billion worth of Tesla’s stock, pushing its price up.

Of course, the big risk to this trade is that both stocks fall. That could happen even if the court scraps the deal: Tesla might be caught up in a wider market selloff, for example, causing the company’s stock to slump. What’s more, Musk could simply decide to not make good on his promise to buy the stock again. It’s not like he hasn’t made bold, misleading tweets before…

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