When a stock joins the S&P 500, it becomes part of a massive volatility complex, which is a terrifying web of arbitrage and pseudo-arbitrage relationships. Tesla will join the index as a top-ten component of a cap-weighted index. It's big.
— SqueezeMetrics (@SqueezeMetrics) December 17, 2020
Since Tesla stock is driven by the returns on call options, it is a slave to "vanna": the relationship between option prices (implied volatility) and delta (stock exposure).
In other words, since June, $TSLA goes up only when implied volatility (IV) goes up (purple line is IV). pic.twitter.com/P2d2gmCYi6
— SqueezeMetrics (@SqueezeMetrics) December 17, 2020
With the call option hype trade hampered, the stock will have no possibility of further returns — a deliciously ironic end to the ugliest of @RobinhoodApp's many ugly children.
And an appropriately ironic fate for Tesla — a victim of its own "success."
Enjoy!
— SqueezeMetrics (@SqueezeMetrics) December 17, 2020
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