TESLA

Macro Perspectives: Fri 27 Nov 2020

With muted price action and minimal market events to discuss, I thought I’d use today’s note to share my thoughts - from a price and trading perspective - on Tesla.

TESLA (TSLA) will be added to the S&P500 (SPX) Index by Monday 21 December 2020.

What this effectively means is that anyone that has funds (pensions & other large asset managers) indexed to the S&P500 will need to purchase TSLA stock, and will sell whichever stock(s) TSLA is replacing (TBD). As TSLA has such a large market cap this is a very large notional change which will likely require a significant amount of the TSLA float.

For funds that are linked to the S&P500, it's important that they own the stock on the close of the date that it is added - so that they match the S&P500 index to which they are benchmarked. The way this is often done, is to purchase shares from a dealer that guarantees them the closing price of Friday 18 December. Therefore the dealers may be purchasing the stock ahead of time so that they can sell (aka "facilitate") the required shares to those index funds at the close. Again, dealers buy TSLA shares in the day(s) leading up to the TSLA S&P add, then sell those shares to the large funds at the close on the 18th (when TSLA is officially added to the S&P500).

My assumption, here in November, is that call buyers will now be aggressively stepping in as a result of the S&P add to shift a divergence between calls & puts - those models based on or involving PUT:CALL ratio’s will be in for a ride.

I see two sources of buying that have started to materialise;

• Call buyers and other short term traders.

• Dealers and Index funds into 18 December.

So whilst technical traders will keep a close eye on the metrics within the options markets, I present some visual analysis for a lighter look ahead - Fractals.