Elon Musk exercises Tesla options, sells US$1.1b in shares to cover taxes

Tesla Chief Executive Elon Musk sold about US$1.1 billion worth of shares to cover tax obligations on options exercise, the billionaire reported in filings on Wednesday (Nov 10).

Musk exercised options to acquire more than 2.1 million shares of Tesla and then sold about 934,000 shares - about 0.5 per cent of his Tesla holdings. After the transactions, Musk owns about 170 million Tesla shares.

On Saturday Musk polled Twitter users about selling 10 per cent of his stake, setting off worries that such a sale could hurt Tesla's share price. In Wednesday's trading session Tesla recovered 4.3 per cent to US$1,067.95.

His transactions were “automatically effected” as part of a trading plan adopted on Sep 14 to sell options that expire next year, according to forms filed with the US Securities and Exchange Commission. That was nearly two months before he floated the idea of the sale on Twitter.

The move gives Musk cash to pay for the tax bill associated with the exercising of the options, given that his wealth, pegged by Forbes at US$281.6 billion, is tied to his stake in Tesla. It also spares him the capital gains tax bill that he would have had to pay had he sold the shares without coupling their divestment with the exercising of the options.

The electric car maker's stock rose 2 per cent after the bell on the news, helping to offset a multiday sell-off that had endangered the company's position in the US$1 trillion club.

In its filing, Tesla said Musk sold shares on Monday to satisfy tax withholding obligations related to exercising stock options to purchase 2,154,572 shares at US$6.24, a huge discount from Tesla's closing share price of US$1,068 the same day.

He then sold 934,091 shares at prices ranging from US$1,135 to US$1,196.

While Tesla has lost close to US$150 billion in market value this week, retail investors have been net buyers of the stock. Some 58 per cent of Tesla trade orders on Fidelity's brokerage website on Wednesday have been for purchases, rather than sales.

Retail investors made net purchases of US$157 million on Monday and Tuesday, according to Vanda Research.

Tesla is now up more than 51 per cent in 2021, thanks largely to an October rally that was fueled by an agreement to sell 100,000 vehicles to rental car company Hertz.

"The company itself is on fire, with strong results," said Tim Ghriskey, a senior portfolio strategist at New York-based investment management firm Ingalls and Snyder.

"That is not going to fade quickly."

Bullish sentiment returned to Tesla's options on Wednesday, with about 1.1 calls traded for every put. Calls are typically used for bullish trades, while buying puts shows a bearish bias.

The company's options accounted for about US$109 billion in premium changing hands over the last two weeks, or about one in every three dollars traded in the US-listed options market, according to a Reuters analysis of Trade Alert data.