Softbank put huge amounts of money on tech calls to drive up the price. I decided to find out how much this would effect the stock. There’s currently about 50 billion dollars in calls on Tesla and 5 billion on puts. A call ATM has about .5 delta which means the market makers are force to delta hedge about 50 shares. The total delta hedge on Tesla should be about 77 billion which is about 20% of the market cap of 389 billion. Now 20% is significant, however Tesla has already fallen by 20% this week.
Theres also a possibility that HFT is chasing the momentum and affecting the price. ” It is estimated that 50 percent of stock trading volume in the U.S. is currently being driven by computer-backed high frequency trading. Also known as algo or algorithmic trading. ”
Everyone knows the tech price are high. Elon sent prices into overdrive with the split. Then he announced a 5 billion dollar public offering to pay off there debt (worried about future cash issues?), which the shares will likely be priced below market value due to the volatility sending prices even lower. Elons brother sells right after the split knowing it would be ATH.
My thought process? Negative news will cause people to close there call options. TSLA won’t be added to S&P. People are already anticipating high volatility during election, so large institutions will hedge with puts, causing more delta hedging of the stock downward. Market makers already have low gamma exposure, which means rather than focus on reducing volatility for long term profits, they will have to sell when others sell and buy when others buy causing increased volatility which leads to lower prices. Also the dark pool index is low meaning its becoming illiquid and a crash could cause large corporations to have to sell on the actual stock market causing huge price movements. The public offering on TSLA will likely cause the stock to creep lower as well.
So a possible timeline:
Tuesday: TSLA drops 2-5% due to the S&P news, as well as the insider trading news. Rest of the market is “okay” due to nothing unusual over the weekend.
Wednesday: Big money may pull out a bit due to the massive layoffs from airlines recently, and the knowledge of unemployment numbers on Thursday showing we are not recovering. another 3% drop in the market, 8% drop for Tesla.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.