Jul 16, 2020 - Economy & Business

Tesla and TSLA: Electric vehicle to gambling vehicle

Data: Factset, Yahoo Finance; Chart: Andrew Witherspoon/Axios
Data: Factset, Yahoo Finance; Chart: Andrew Witherspoon/Axios

For millions of traders and CNBC addicts, the word "Tesla" doesn't mean cars — it means TSLA, one of the wildest large-cap stocks the world has ever seen.

Driving the news: On Monday alone, Tesla opened $114 higher than its previous close, then gained another $136 within 15 minutes, then dropped by $324 before the market closed. (Even during the drop there was a half-hour period where the stock rose another $100.)

  • Each dollar of Tesla's share price corresponds to a market capitalization of $185 million, which means that Tesla lost more than $60 billion of value intraday. That's more than the market cap of Ford and Fiat Chrysler combined.

Large-caps aren't supposed to be this volatile. Tesla's Monday peak was 89% higher than the low point two weeks earlier — on no real news.

  • The rise was partly due to small retail investors rushing in, and partly due to short sellers getting squeezed. But ultimately looking for reasons is a fool's errand. (Can a short squeeze really last seven years?)
  • The one known known is that Tesla stock is highly volatile. Looking at the implied volatility suggested by options pricing, there's roughly a 15% chance that in three weeks time, Tesla stock will either be trading below $900 or above $4,000.

By the numbers: Tesla stock is popular among day-traders who don't like to hold any kind of position overnight. Partly as a result, it opened higher than its previous close every day this month up to yesterday.

  • If you bought one share of Tesla at the closing price each day in July and sold it immediately at the open the following morning, you would have made more than $450 between July 1 and July 15.*

Don't look to Wall Street analysts for clarity. Their price targets range from $87 (Gordon Johnson of GLJ Research) to $2,322 (Alex Potter of Piper Sandler).

  • Coming up: Tesla's second-quarter earnings arrive on July 22. If Musk can manage to eke out a profit, no matter how small, then that will mean four successive quarters of profitability — which in turn means that Tesla will be eligible to join the S&P 500, and index funds with trillions of dollars under management will be forced to buy the stock.

The bottom line: Cars and carmakers have had mythic status for decades. But for the time being it often seems that there's only one game in town.

Go deeper: Breaking down the Tesla obsession

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