Tesla has been a game changing force in more than obvious ways. It is a trillion dollar company no doubt but as this piece by Robin Wigglesworth in the FT shows, it punches even way above that when it comes to its influence in the market. Take for instance, the hyperactivity in Tesla options – the stock for its size is extremely volatile making it a prime candidate for options activity further helped by a “Twigger” happy CEO.
“One of Tesla’s oddest quirks is the fuel that has helped power its rocketing stock market value. Although its stock is wildly popular with many ordinary retail investors, the swelling size and hyperactivity of Tesla “options” — popular derivatives contracts that allow investors to bet both on and against a stock and magnify any gains and losses — has also flabbergasted many market veterans.
The nominal trading value of Tesla options has averaged $241bn a day in recent weeks, according to Goldman Sachs. That compares with $138bn a day for Amazon, the second most active single-stock option market, and $112bn a day for the rest of the S&P 500 index combined…. The Tesla options market — more than 60 times as active as the entire FTSE 100 options market, and almost seven times greater than Euro Stoxx 50 options — has helped push US option trading volumes above actual stock trading volumes this year.… In November options trading was 50 per cent higher than stock trading in nominal terms, and without Tesla and Amazon it would have been 20 per cent lower….historically the combined trading activity in US equity options has been between 10 and 20 times larger than activity in the biggest individual equity options market. However, there have been days recently where Tesla’s option trading activity has been five-to-six times the rest of the S&P 500 options ecosystem combined. “The size of the Tesla options market is absolutely enormous,”
Furthermore, Tesla’s rally and its resulting growing weight in the index is putting at risk careers of many a fund manager circumspect about its valuation. Rarely do single stock bets have such an impact on fund performances –
“US mutual funds focused on growth stocks suffered their worst bout of underperformance in at least two decades in October, largely due to the carmaker’s rally. For US mutual fund managers as a whole, Tesla alone crimped their relative performance by 0.46 of a percentage point in October, according to Wells Fargo analysts, helping turn what was heading towards being a decent year into yet another mediocre one for stockpickers….Betting against Tesla has been particularly painful. Hedge funds that have shorted Tesla shares over the past decade are sitting on cumulative losses of over $60bn, according to S3 Partners, a financial analytics company. Just this year the losses have come to $11bn….The “short interest” in Tesla — the percentage of shares that have been lent out to and sold by hedge funds — has now fallen from 20 per cent at the start of 2020 to just 3.3 per cent by mid-November, according to S3. A sign, industry insiders say, that fund managers are now reluctant to risk their careers betting against a stock that has defied financial gravity for so long. Prominent bears keep falling by the wayside.  
Michael Burry, the hedge fund manager made famous by author Michael Lewis in The Big Short and portrayed by Christian Bale in the film of the same name, last year called Tesla’s stock price “ridiculous” and revealed that he was shorting it. But in October he said he had ended the trade and closed out the short position. “It’s the original meme stock,” says Green, referring to companies like GameStop that have gained sky-high valuations off the back of social media hype. “Shorting Tesla is just an ego trade at this stage. Tesla has been a primary contributor to destroying the credibility of active management over the past few years.”
Tesla’s success has also rubbed off on the electric vehicle industry as a whole.
“Tesla-emulators Rivian and Lucid are now valued at about $110bn and $90bn, respectively, despite having negligible revenues and no profits. An index of EV and electric battery companies compiled by the FT has a combined market capitalisation of almost $1.8tn. In contrast, automotive giants Toyota, Volkswagen and Hyundai, the biggest car manufacturers in the world, are worth about $254bn, $135bn and $42bn, respectively…Even Nikola, an electric truck start-up that has set aside $125m to settle fraud charges from the Securities and Exchange Commission over claims that it misled investors about its technology, is still valued at $5.4bn. That is enough to qualify it for the blue-chip S&P 500 index — if it had ever made any profit.”

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