I DID decide to close that position today with a loss (sell 2.40, buy 8.40). With the S&P news and the month to expiration, I expect the price to be significantly higher by then than now, and I don't see a good reason to stand in front of that train. I didn't think 560 was reachable in the next month and could still be proven right, but I DO consider it to be reachable today.
First up - not advice; we all make our own decisions and live with the consequences (good and bad).
Thinking more about the inclusion and the dynamics I expect around it, I've decided to join in the front running of the index buying by buying some calls - something I nearly never do. I've gone for two positions - one closer (12/4 500s) and one further (Jan '21 700s). The 700s are partially chosen with the hope that they will close in '21 and move the tax impact into next year.
I may do some more, but the underlying dynamic I see will be the same.
This S&P 500 inclusion is going to have an effect on short term trading (duh
). The specific dynamics I see:
- index funds (the ones that have licensed the index, and specifically 'trade' to match the index) will be buying a significant number of shares in the mid/late December timeframe. I've seen an estimate of 15% of the company for these (I can't attest to the truth of that though).
- benchmarked funds - the rather large universe of actively managed funds that benchmarked their results against the S&P 500 will need to buy into TSLA if they aren't already. In effect, a choice to own less TSLA than the index funds is a bet that they can outperform by owning less TSLA (and vice versa). This direct impact will cause buying to happen in this world.
- The actively managed funds also have the ability to front run all of this share buying - buy now (as many of us are doing, including me with those call purchases), let the programmed buying happen, and sell into that programmed buying.
- The rest of the investing world can front run as much or as little as they choose to do.
- We saw what the market can do to a very large and telegraphed move in the market when the near month oil contract went briefly negative back in May.
- (Side effect): I expect the S&P to spread out the buying as they talked about. I also expect them to change how they announce these inclusions in the future.
EDIT to add:
- Anybody short TSLA might decide that they don't want to stand in front of this train - even more buying (though I don't trust any sizing I can do on this).
- And \lastly, I expect that hot / front running money to promptly disappear when the index buying is done (or to front run the exodus!); I wouldn't be surprised if we're back near this level by mid-January.
Lots of ways I can be wrong in this - I am pretty much always wrong about <3 month direction and magnitude of share price movements. I do feel strongly enough about this though to take advantage of this setup, as I nearly never do.
