Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Curt Renz]

i wonder if sell the news has a math explanation? Prior to big news, options/hedges are placed to limit risk. After the news options are unwound and market makers can sell stock associated with the options.

Undoubtedly, that is what happened. Too many Tesla bulls speculate with call options instead of being content with owning shares of the stock. That has become especially true during the pandemic, as risk loving sports bettors have been sidelined, and have become novice call option buyers. Big option writers (mainly hedge funds and market makers) pluck the feathers of these clueless birds.

 

[smorgasbord]

Some thoughts on S&P Inclusion timing.

Historically, Tesla releases its 10-Qs on the 29th or 30th of the month of the earnings call, whether that call occurs just a day or two before or a week before. That means we're likely to see the 10-Q on Tues of next week, +/- a day.

The S&P Index Committee meets once a month. Hopefully, they're not meeting on Aug 1 or 2, and so they will have had time for their accountants to dissect the 10-Q and bless it as reasonable.

Let's assume it takes a day or two to write and schedule the announcement. As discussed earlier, there's about 5-6 days (maybe as many as 8) between announcement and official inclusion. Historically, the Committee seems to avoid Mondays and Fridays as official inclusion dates.

So, spitballing:
1) Earliest: They meet Aug 6, prepare an announcement to be released on Aug 7 and inclusion date is Aug 14.
2) Latest: They meet whenever in August and don't get a majority one way or the other and so postpone it until September.
3) Scariest: They meet in August and decide to not add Tesla. I've not seen an "we're not including XXX company" announcement from S&P, so I think this means we go months and months until people give up or TSLA drops and they decide to add it during, say, Jan 2021.

Sept 2nd is Labor Day, markets are closed. I think that would factor into their timing as they probably don't want to have an extended weekend between announcement and official inclusion. There's also a rebalancing date in Septemeber and they probably don't want to add Tesla just before or just after that rebalancing.

 

[Knightshade]

What will happen when shorters start covering their positions?

They already have been- it's part of what has driven the price up faster/further.

The % of shares shorted has declined pretty steadily- it's just that the share price has surged so much the "amount of money" shorted remains crazy high.

But the % of float shorted is only ~8.5% in his note- that's a LOT lower than it used to be... it was just shy of 20% of float end of 2019.

He's right imo. @Fact Checking is of the same opinion.

Index funds buying ahead of the official announcement and thereby effectively speculating on it completely goes against the nature and objective of an index fund.

Keep in mind an index fund's objective is to track an index, not to maximize returns.

I'm not sure how/why that was ever even up for debate. It's inherent to the nature of the fund they can't pre-buy stuff not announced for inclusion.

Possibly it's another case of folks not understanding the difference between a fund indexed to the S&P500 which can't have bought any TSLA to this point, and the much larger amount of $ in funds benchmarked against the S&P500 which can (and some of which have owned TSLA shares for quite a while now).

The indexed group owns 0 today, but will have to buy ~26 million shares if inclusion is announced.

The benchmarked group owns more than 0 (dunno that exact amount is known or easily knowable) but is not required to buy any at all on inclusion.... (some might even choose to sell some of theirs they already hold to profit from a spike and then plan to rebuy later for less as such spikes usually back themselves off)

 

[JRD1]

Nvidia expresses interest in SoftBank's chip company Arm Holdings: Bloomberg News

$32 Billion is a lot of money, perhaps it would sell for less now?

Yep - been seeing articles about it and seems like they aren’t finding much interest. I get the impression it will go for far less than what SoftBank paid. With so much of the value of the company in the IP and not tangible goods, potential buyers could put wildly different values on it though.

Without fab it just doesn’t seem like worth the distraction for Tesla.

 

[Prunesquallor]

"Upward price pressure on Tesla’s stock price will continue to be reinforced by the short side of the market as the feedback loop of higher stock prices forcing even more short covering helps drive prices higher.”

A true virtuous cycle.

 

[vikings123]

Undoubtedly, that is what happened. Too many Tesla bulls speculate with call options instead of being content with owning shares of the stock. That has become especially true during the pandemic, as risk loving sports bettors have been sidelined, and have become novice call option buyers. Big option writers (mainly hedge funds and market makers) pluck the feathers of these clueless birds.

Here is what @Fact Checking has to say about it. I think we all know Citadel has a huge stake. They are obviously playing with fire with S&P inclusion on the horizon.

The tweet is from this morning so before the regular market hours.

 

[MC3OZ]

Yep - been seeing articles about it and seems like they aren’t finding much interest. I get the impression it will go for far less than what SoftBank paid. With so much of the value of the company in the IP and not tangible goods, potential buyers could put wildly different values on it though.

Without fab it just doesn’t seem like worth the distraction for Tesla.

I agree, they don't see to have a fab...

But their website is worth visiting... some interesting stuff there...

I think it will go for a lot less than what Softbank paid, but I would be very surprised if Tesla was interested in buying ARM.

 

[jhm]

This isn't passing my sniff test.

If I understand you correctly, you are saying that because the index funds will be able to buy shares from the dark pools, they can get all they need without pushing the prices up. But this would entail the private investors who comprise the collection of shares in the dark pools to buy on the open market. By doing so, in advance of eligibility, they would be taking the risk that TSLA might fail to achieve 4 quarters of profitability or that they might be excluded for some other reason. And that, even though they are taking on this risk, they would then be willing to sell the shares to the index funds for prices lower than that which would be obtained if they decided instead to sell them on the open market.

Please flesh this out more. Who is taking on the risk and why would they turn around and sell for lower prices than they could otherwise get?

Suppose you Evil Investments and you company has huge Evil S&P 500 Index Fund (ESP). You know that Tesla will get included. Even if they fail to get 4 profitable quarters, you know the rules will be bent to include Tesla. You know this several quarters in advance. You know that ESP shareholders are passive investors that must buy a certain number of share at the market price. So are in the perfect position to front-run ESP. How do you do it? You have several quarters to accumulate shares, futures contracts and options in dark pools. You accumulate the bulk of what you need. The last bit you buy on the market near the time of inclusion. This assures the market price goes higher that your dark pool acquisition price. You're Evil, and you collect the gain on front-running your your passive fund investors.

The whole fantasy that retail investors have about S&P inclusion has fueled extreme hype. The problem is that institutional investors are much better positioned to front-run passive investors that retail are to front-run institutional investors. 73% of the float is already in institutional hands. That is far more than will be dumped on index fundholders when the time comes.

Let's be clear both retail and institutional investors have been salivating about putting Tesla shares on passive investors. We are all greedy, but in my view institutional investors are in a much better position to profit from this than us retail folks. Let's hope for all those passive investors that Tesla's share price remains high well past the inclusion date.

 

[FrankSG]

I'm not sure how/why that was ever even up for debate. It's inherent to the nature of the fund they can't pre-buy stuff not announced for inclusion.

Possibly it's another case of folks not understanding the difference between a fund indexed to the S&P500 which can't have bought any TSLA to this point, and the much larger amount of $ in funds benchmarked against the S&P500 which can (and some of which have owned TSLA shares for quite a while now).

The indexed group owns 0 today, but will have to buy ~26 million shares if inclusion is announced.

The benchmarked group owns more than 0 (dunno that exact amount is known or easily knowable) but is not required to buy any at all on inclusion.... (some might even choose to sell some of theirs they already hold to profit from a spike and then plan to rebuy later for less as such spikes usually back themselves off)

Rob Maurer holds onto what his source told him, which is +/- 30 days from inclusion index funds can buy. But yeah, I don't believe this to be the case either. The confusion might stem from his podcast, because of its (well deserved) popularity.

 

[Quesder]

Undoubtedly, that is what happened. Too many Tesla bulls speculate with call options instead of being content with owning shares of the stock. That has become especially true during the pandemic, as risk loving sports bettors have been sidelined, and have become novice call option buyers. Big option writers (mainly hedge funds and market makers) pluck the feathers of these clueless birds.

Too bad. If these people could be more patient and buy real stock share, the SP would be mock higher and steady, and all of us would become richer.
No, I am not referring to the call buyers in this forum

 

[ByeByeJohnny]

He's right imo. @Fact Checking is of the same opinion.

Index funds buying ahead of the official announcement and thereby effectively speculating on it completely goes against the nature and objective of an index fund.

Keep in mind an index fund's objective is to track an index, not to maximize returns.

Their index funds yes. But what stops the hedge fund that runs the index fund and 50 other funds most of which are not index-tied to have started buying into one or several of those and do an internal sale whenever the announcement is made?

 

[azaz]

Some thoughts on S&P Inclusion timing.

Historically, Tesla releases its 10-Qs on the 29th or 30th of the month of the earnings call, whether that call occurs just a day or two before or a week before. That means we're likely to see the 10-Q on Tues of next week, +/- a day.

The S&P Index Committee meets once a month. Hopefully, they're not meeting on Aug 1 or 2, and so they will have had time for their accountants to dissect the 10-Q and bless it as reasonable.

Let's assume it takes a day or two to write and schedule the announcement. As discussed earlier, there's about 5-6 days (maybe as many as 8) between announcement and official inclusion. Historically, the Committee seems to avoid Mondays and Fridays as official inclusion dates.

So, spitballing:
1) Earliest: They meet Aug 6, prepare an announcement to be released on Aug 7 and inclusion date is Aug 14.
2) Latest: They meet whenever in August and don't get a majority one way or the other and so postpone it until September.
3) Scariest: They meet in August and decide to not add Tesla. I've not seen an "we're not including XXX company" announcement from S&P, so I think this means we go months and months until people give up or TSLA drops and they decide to add it during, say, Jan 2021.

Sept 2nd is Labor Day, markets are closed. I think that would factor into their timing as they probably don't want to have an extended weekend between announcement and official inclusion. There's also a rebalancing date in Septemeber and they probably don't want to add Tesla just before or just after that rebalancing.

I believe to add a company it does not have to be during one of the monthly scheduled meetings

 

[Knightshade]

I believe to add a company it does not have to be during one of the monthly scheduled meetings

Yup- there's been adds on multiple dates in the same month in the past

Their index funds yes. But what stops the hedge fund that runs the index fund and 50 other funds most of which are not index-tied to have started buying into one or several of those and do an internal sale whenever the announcement is made?

Figured that was exactly the dark pool idea being mentioned by jhm.... there's dozens of such pools including by the folks who also have large index funds that will need a supply of stock.

 

[vikings123]

Some thoughts on S&P Inclusion timing.

Historically, Tesla releases its 10-Qs on the 29th or 30th of the month of the earnings call, whether that call occurs just a day or two before or a week before. That means we're likely to see the 10-Q on Tues of next week, +/- a day.

The S&P Index Committee meets once a month. Hopefully, they're not meeting on Aug 1 or 2, and so they will have had time for their accountants to dissect the 10-Q and bless it as reasonable.

Let's assume it takes a day or two to write and schedule the announcement. As discussed earlier, there's about 5-6 days (maybe as many as 8) between announcement and official inclusion. Historically, the Committee seems to avoid Mondays and Fridays as official inclusion dates.

So, spitballing:
1) Earliest: They meet Aug 6, prepare an announcement to be released on Aug 7 and inclusion date is Aug 14.
2) Latest: They meet whenever in August and don't get a majority one way or the other and so postpone it until September.
3) Scariest: They meet in August and decide to not add Tesla. I've not seen an "we're not including XXX company" announcement from S&P, so I think this means we go months and months until people give up or TSLA drops and they decide to add it during, say, Jan 2021.

Sept 2nd is Labor Day, markets are closed. I think that would factor into their timing as they probably don't want to have an extended weekend between announcement and official inclusion. There's also a rebalancing date in Septemeber and they probably don't want to add Tesla just before or just after that rebalancing.

One of the most recent additions to S&P, DCOM, filed their 10Q on April 30th and were added to S&P on May 6th. So I guess technically August 5th or 6th announcement is possible.

I will also add that Tesla filed their Q1 10Q the day after earnings so it is possible we see the 10Q tomorrow or on Monday.

 

[smorgasbord]

Yup- there's been adds on multiple dates in the same month in the past

Figured that was exactly the dark pool idea being mentioned by jhm.... there's dozens of such pools including by the folks who also have large index funds that will need a supply of stock.

1) Just because there have been multiple add dates in a month does not necessarily mean there have been multiple meetings in a month. There were two articles I linked to previously, both of which were interviews with the previous Chairman of the Committee, David Blitzer, that claimed they meet monthly.

2) The whole "dark pool" thing has weird traction over on the Motley Fool boards as well.

For instance, they'd buy TSLA in one fund now and transfer the shares over to the index fund later. What do they tell the people in the first fund? "Sorry, but we just bought TSLA in your fund to give the shares over to people holding our other fund. You chose the wrong fund, bub." Hardly.

Or, fund owners have billions of dollars not in any fund lying around to speculate on TSLA before Q2 earnings were even announced. Of course, there is speculation, but there's probably more done with options or other derivatives than actual just buying stock.

I'm sure there's been all sorts of S&P 500 front-running going on, in various ways, including both stock and option trading. I still believe that index funds are not buying TSLA. Their goal isn't to make a ton of money, they goal is to mimick the index as closely as possible. Going speculative in such a fund violates everything about such index funds and would raise serious concerns about fund management, even if well intentioned.

 

[smorgasbord]

One of the most recent additions to S&P, DCOM, filed their 10Q on April 30th and were added to S&P on May 6th. So I guess technically August 5th or 6th announcement is possible.

I will also add that Tesla filed their Q1 10Q the day after earnings so it is possible we see the 10Q tomorrow or on Monday.

1) I'm speculating that the Committee will want more time to review Tesla's 10-Q

2) Tesla only files the 10-Q the day after the earnings announcement when the announcement occurs near the end of the month. I could find no 10-Q issued by Tesla in the last couple of years before the 28th of the month. Sometimes they miss the month entirely and release is early the following month (It seems under Zach they've been better, btw):

SEC Filings | Tesla, Inc.

 

[StealthP3D]

Suppose you Evil Investments and you company has huge Evil S&P 500 Index Fund (ESP). You know that Tesla will get included. Even if they fail to get 4 profitable quarters, you know the rules will be bent to include Tesla. You know this several quarters in advance. You know that ESP shareholders are passive investors that must buy a certain number of share at the market price. So are in the perfect position to front-run ESP. How do you do it? You have several quarters to accumulate shares, futures contracts and options in dark pools. You accumulate the bulk of what you need. The last bit you buy on the market near the time of inclusion. This assures the market price goes higher that your dark pool acquisition price. You're Evil, and you collect the gain on front-running your your passive fund investors.

The whole fantasy that retail investors have about S&P inclusion has fueled extreme hype. The problem is that institutional investors are much better positioned to front-run passive investors that retail are to front-run institutional investors. 73% of the float is already in institutional hands. That is far more than will be dumped on index fundholders when the time comes.

Let's be clear both retail and institutional investors have been salivating about putting Tesla shares on passive investors. We are all greedy, but in my view institutional investors are in a much better position to profit from this than us retail folks. Let's hope for all those passive investors that Tesla's share price remains high well past the inclusion date.

I'm still not seeing how you think "dark pools" fit into this scheme. If the goal is to profit as much as possible due to greed, wouldn't you want to sell all the shares to the passive index funds on the open market so the price would run up? Also, I don't believe anyone "knows" Tesla would be included regardless of whether they made a profit. The whole scenario doesn't make a lot of sense to me.

 

[UnknownSoldier]

Crazy idea but with SoftBank looking for a buyer for ARM Holdings, I wonder if anyone at Tesla has given it a thought.

If they had fabrication facilities it might be worth a look but otherwise seems like there wouldn’t be enough synergies across Tesla/SpaceX/etc

Sounds like Apple isn’t interested and they’d have a better case for it than Tesla

Nvidia are supposedly interested and that would be genuinely interesting. If anyone can make ARM architecture a genuine rival and destroyer of x86, Nvidia could do it.

 

[ByeByeJohnny]

I'm still not seeing how you think "dark pools" fit into this scheme. If the goal is to profit as much as possible due to greed, wouldn't you want to sell all the shares to the passive index funds on the open market so the price would run up? Also, I don't believe anyone "knows" Tesla would be included regardless of whether they made a profit. The whole scenario doesn't make a lot of sense to me.

But it doesn't much matter if they would sell them on the open market. It would mean a number of shares are already designated to be sold at the time.

Example
26 million shares needed out of 100 million potential (can't remember the correct number) = 26%

A total of 10 million shares have already been bought up (part of the reason for the rising price in July). Then you have

16 million remaining shares needed out of 90 million = 18%

It changes what percentage of further shares have to become 'available'

 

[Curt Renz]

Craig Johnson is a managing director and technical strategist at Piper Sandler (formerly Piper Jaffray). He was a regular guest of mine on my old TV show, and still sends me his newsletters. In early 2003 he recommended TSLA, which led to my first purchase at $38.

This morning Craig’s colleague Alexander Potter reiterated his BUY rating on TSLA and raised his price target from $2322 to $2400.

Below is what Craig wrote this morning:

Tesla Inc (TSLA - $1592.33); Indicated higher this AM; shares are ST consolidating near record-highs; well-extended above the 10-/30-week WMAs; RS has climbed to multi-year highs and notable TechniGrade ranking; use pullbacks as buying opportunities.

I just discovered that Craig was on CNBC this morning, shortly before I received his newsletter by email. He doesn't discuss Tesla in the video, but it gives you a good idea of how he is thinking.