Options Traders are Frothing at the Mouth for Tesla’s S&P 500 Debut

Aside from having a market capitalization of at least $8.2 billion, the company must be “highly liquid, have a public float of at least 50% of its shares outstanding,” to join the S&P 500.

Throughout the pandy, Robinhooder’s have relished scaling into Tesla weeklies and printing dough Federal Reserve-style. The stock has soared so much this year that any yahoo with a handy-dandy stimulus check booked some healthy gains by selling puts, buying calls, or selling calls far above Tesla’s [$TSLA] stock price.

Depending on how “online” you are, these option contracts are affectionately known in Reddit finance circles or the Twittersphere as “OTM sh*t-calls”. In 2020 alone the stock has rallied 580%, decisively outperforming the S&P 500’s 14% gain.

Susquehanna Financial Group sends clients a daily roster of message-board trading activity. Often included is Tesla, as are options on virtually any stock riding massive momentum. Now pajama traders are starting to catch institutional investors eyes as the impetus credited with moving the stock.

If Tesla was in the S&P 500 this year, it would be the index’s best performing stock this year, by far.

“If you believe in Elon Musk and his messianic fervor that he will change the world, you have been richly rewarded, and the more leveraged you are to Tesla success, the better you did,” says Steve Sosnick, Interactive Brokers’ chief strategist [$IBKR], who is hyperaware of the euphoria surrounding Elon’s company.

Make no mistake, the Tesla trade may hit escape velocity when it joins the S&P 500 on December 21. The stock’s introduction to the market benchmark means that index funds, exchange-traded funds, and investors who track the index have to get a little exposure to the action. Shareholders could benefit from this bottleneck buying spree, which translates into yuge opportunities in the options market.

“They’re almost turning the S&P 500 into more of a momentum index,” Apriem Advisors’ — Benjamin Lau

It’s pretty likely the vast syndicate of Tesla permabears will soon be forced to either cover some short positions or even buy the stock outright. In the past year, Tesla’s stock has ranged from $65.45 to $607.80, and its up a whopping 751%.

The bear case for the stock is the evergreen “buy the rumor, sell the news” adage. Also, there’s a list of institutional suits that flat out loathe Elon and his balance sheet gymnastics, that’ll sell the stock just based on the chance that the index inclusion could be as good as it gets for Tesla. Regardless of what side of the trade you’re on, get your popcorn ready, this will be an interesting end of the year.

Elon Musk admitted that the company was within “single-digit weeks” of bankruptcy in 2018 – the profitability criterion was the last one to be checked by the electric car maker. After years of losing money, Tesla posted a net profit in each of the five past quarters, meeting the profitability target by the end of the second quarter of 2020.

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