This is Brad DeLong's Grasping Reality—my attempt to make myself, and all of you out there in SubStackLand, smarter by writing where I have Value Above Replacement and shutting up where I do not… CROSSPOST: BRAD MUNCHEN Tesla is Rallying Again. Most Thought it Would Drop (Full Behind Paywall)Fill your boots, as they say. An opportunity to make money both on the way up and on the way down is here again, like last December...
Fill your boots, as they say. An opportunity to make money both on the way up and on the way down is here again, like last December…Brad DeLong—not Munchen—here in this section: It is astonishing: the effectiveness of the theory that “we can make money by frontrunning the Big Boys as they manipulate stock prices” in driving short-run asset valuations of stocks on which internet social-media opinion focuses. And, to make the Worm fully Ouroboros, the ability of the Big Boys to actually manipulate stock prices is itself amplified by the availability of an army of options traders who believe they can make money by following this theory: their far out-of-the-money purchases then induce huge amounts of positive-feedback trading by those who sold them the options and need to delta-hedge their positions, and then amplify the delta-hedge on the way up with increasing gamma. Massive short-dated call buying acts as a dog whistle to launch the process. Rallies don’t require fundamentals; headlines about robotaxi “permits” and autonomy “news” serve as triggers to juice options volumes. And, as Brad M. points out, these large “rallies for no reason” have been recurring since 2020; the current one aims at keeping Tesla above $350, then $400, and perhaps $500 into the November 6 planned vote. The incentive narrative: a huge CEO award and potential Tesla-to-xAI investment create reasons for Vested Interests to push the stock now:
The possibility of this happening is, I think, the result of these features of the current market:
Nobody is thinking that if Tesla were to be valued at the same forward 2026 earnings multiple as the others of the Magnificent Seven, it would trade not at is current $400 but $70. And, as Brad M. points out, where Tesla to be valued as an actual car company, “Tesla would be worth $17… 96% downside…” Back before the Great Depression, on Wall Street we had:
In short: operators would “paint the tape”; the crowd would try to surf behind them. Options purchases, corresponding delta-hedging, and then the “gamma squeeze” is a modern, more transparent, more mechanical analogue. The continuity with—rather, the revival of—the 1920s and before consists of: narrative catalysts, motivated insiders/“operators” with well-understood aims, feedback from flows, and a public eager to believe it could skate behind the Zamboni rather than find itself trying to pick up nickels in front of the steamroller. The break from the patterns of the 1920s and before is that the big “operator” here is often the structure of the call options market itself, with mechanical dealer hedging creating very reliable positive-feedback stock demand curves for those with eyes to see the setup first and act quickly.
Gee, I guess—especially since I am unwilling to quote too much from behind Brad M.’s paywall—this really isn’t a crosspost, is it? Is this in fact what is going on now? Brad M. thinks so: And, so, now over to Brad M. of Motorhead: Tesla is Rallying Again. Most Thought it Would DropFill your boots, as they say. An opportunity to make money both on the way up and on the way down is here again, like last December.Motorhead |
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Tesla is rallying hard on record-high call option volumes because Musk needs the share price to be high ahead of Tesla’s November 6 shareholders meeting (there’s a $1 trillion CEO compensation award and more at stake)….
Tesla… risen by 17% in… six trading days… no apparent reason…. Possible catalyst… Musk has a $1 trillion pay package up for a vote at the November 6th shareholders meeting…. 2 main reasons… [I] believe that this rally aims to get Tesla’s share price as high as possible ahead of the November 6th shareholders meeting….
Musk has a $1 trillion CEO performance award up for a vote, which would make his stake in Tesla 29% and worth $2.45 trillion if he manages to get Tesla to the market cap milestone of $8.5 trillion by 2030.
As important, from a liquidity standpoint for Musk, is the shareholders’ vote on whether Tesla can invest in Musk’s AI start-up, xAI, in which he holds a 54% stake. It’s a yes or no vote… could be more than… $5 to $10 billion… signals at least $2.7 billion to $5.4 billion of immediate cash for Musk.
With all this money to be had (by Musk’s design), I fully expect Q3 deliveries on October 2nd and Q3 earnings around October 23rd to be spectacular…. The current rally in Tesla’s stock is simply based on short-term momentum and has no regard for the huge Q4 pull-back in US demand, and the ensuing cash burn. But no one cares right now, because the Vested Interests in Tesla need the stock price to go up and, as is seen in Figure 1, juicing the options market always works: It’s like a dog whistle for day traders and hedge funds, who pile in and intensify the move upwards, like last December…
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