Incredibly weird trading today. Stock is up about 60 points and the open interest I have been tracking indicates the option sellers, i.e. market makers for the most part, need to buy a little over 6 million shares to remain hedged.
The actual trading volume per my broker (IB) is an average level of 16 million shares. it is not possible to buy 6 million shares with a total traded volume of 16 million. by my estimates they need to have about a 4x volume day (24 million) to absorb the magnitude of the move. My guess is the market makers closed the books for today net short by about ~2 Million shares or so. They may have to acquire this tomorrow or pretty soon, and this could snowball.
@ReflexFunds may be able to confirm this or have more to say.
Clearly I am not surprised by the AH creep up and would expect this to continue into tomorrow.
Agreed, smaller options market makers slowly balancing their delta hedges and bidding up each other is one of the possible explanations for yesterday's AH rise - and then we haven't even gotten the bigger ones delta neutral yet, because they probably didn't want to tip their hands in a weak-liquidity AH market that would quickly expose their intentions ...
And this week is a
BIG options expiry week, so there might be a lot of compulsory delta hedging if the price otherwise runs out of the range they'd otherwise be comfortable with capping.
With major positive catalysts like Tesla credit upgrades still outstanding, most small and mid size options market makers would prefer to narrowly maintain their delta neutral hedges, in after-hours and early-hours trading as well, and new shorts would still rather be waiting on the sidelines before committing. There's also a constant tailwind: China situation might improve further, and a potential GF4 court approval today or tomorrow could eliminate one of the few remaining short term negative notes.
Also, I still maintain my hypothesis outlined to
@ReflexFunds, that Tesla's float has contracted dramatically, and that without any viable bear thesis alive and no well defined top the short interest is squeezing the price up not via the buying primarily (which can be absorbed), but via the float contraction effect (which is permanent). Any ongoing S&P 500 index inclusion accumulation by larger funds will only further contract the float.
Officially the float is 142 million TSLA shares - in practice the "effective float" could be as low as 100 million shares - maybe as low as 50 million shares at current price levels.
This explains days like February 3 (a Monday) with insane 47m shares trading volume and a melt-up - if float-contraction hypothesis is true then almost the whole float held by weak hands changed hands and
contracted further, because even more "strong hands" acquired shares they'd not sell before they realize some good profits on them. Only an insanely gutsy attempt at manipulation on the next day on 67 million shares volume by Andrew Left & co-conspirators defined a (possibly only temporary) top.
The notion that there's a good chance that Tesla will turn into a trillion dollar company is now "common wisdom" even among rational bears (!). Anyone with primary school math skills can divide $1,000,000,000,000 with ~200 million shares and arrive at a $5,000 long term price target, and the tax and business cycle incentives in the U.S. for investors to buy-and-hold are strong.
But the three principal forces contracting the float might be stronger than ever. Not advice.
