Tesla (NASDAQ: TSLA) Inspires a wide range of ideas from investors. Some see the electric-vehicle giant as the most important company on the planet, while others believe it to be overhyped and possibly the biggest bubble in stock market history. The harsh debate between the two sides made it difficult for many investors to maintain a supernatural view of Tesla.
Focusing on facts is the best way to keep your emotions under control. When it comes to Tesla, the two key facts create a short-term opportunity to come together that promises to be fascinating to watch. And you don’t need to wait long because the day of reckoning is coming within the next two weeks.
Why December 18 will be the day to see Tesla
These are the facts, and they are indisputable:
- On December 3, Tesla’s stock had jumped over 600% by 2020. This increased the automaker’s market capitalization to over $ 550 billion.
- Tesla stock to be added to S&P 500 Index Effective at the start of business on Monday 21 December.
Investors waited a long time to see when Tesla would get an invitation to join the ranks of the nearly 500 companies tracked within the main benchmark. Billions of dollars of investment in index-linked investments follow the S&P 500, so joining the index is a big thing. Tesla stock is likely to change hands in the coming two weeks for a hundreds of billion dollar S&P addition. To ensure they will be Tesla’s returns as part of the index calculation, investors following the S&P 500 will need to ensure they have stock exposure by the end of trading on Friday, December 18 Is – official plus the last business day.
In addition, the S&P Dow Jones Indix, which runs the S&P 500, said this week that Tesla would fall into the index in a swoop. The index manager previously suggested the possibility that Tesla could be combined into two parts, but it decided not to favor that route in a one-time strategy.
By itself, this would be enough to create extreme volatility in Tesla’s stock. We have already seen the results of that volatility since the S&P announcement. But many stock investors do not realize the other component of causing a perfect storm in the trading of Tesla shares on 18 December.
Tesla and the Quadruple Witch
It just so happens that December 18 is also an important day for traders in options and futures. It is one of four days each year in which stock futures contracts, stock index options, individual stock options and single-stock futures contracts are all terminated. Traders sometimes refer to these confluences of four different ends as quadruple witch days.
Quadruple witching days often bring mass volatility for the entire market. The nadir of the coronovirus bear market came in the two days surrounding the quadruple witch of March 20, and after that the stock was down on Monday and never looked back.
This is going to be a very big day for Tesla. Options play a major role for investors in the electric automaker, with an open interest of over 7.8 million option contracts as of early December. 3. This may not sound like much, but each option represents 100 shares, more than the underlying stock represents Tesla’s entire public float of 760 million shares.
Not all of those options expire on December 18. However, some financial institutions tracking the S&P 500 will use the options to guarantee their ability to acquire Tesla as the market nears that day – and traders specializing in those markets will be doing all they can. Can take advantage of its forced purchase.
Focus on the basics of Tesla for your benefit
Smart Tesla shareholders have already used these fireworks as an opportunity. You can see the automaker’s stock price increase by almost $ 200 a share since the S&P 500 announcement, noting that people who may have sold their stock have closed instead Also that they have given a guarantee of 18 December to the buyers.
Those who are interested in a long-term investment in Tesla will have two things to consider. In contrast to the company’s lack of news, there is reason to believe that the path of least resistance to Tesla’s share price over the next two weeks will be upward. After its addition on December 21, many short-term traders will sell their stock for a profit, possibly creating a short-term dip. For those looking to add Tesla, the most sensible thing to do is to wait until the half is over to buy the second half of the S&P 500 event.
However, the important thing to remember is that in the long run, the disruption due to Tesla’s addition to the S&P 500 won’t matter very much. If Tesla’s fundamental business fails to perform well, the naysayers will be vindicated. But if Tesla executes all its possibilities, then the lead remains ahead.