Print this article

Tesla And The Widow-Maker Trade

Christian Armbruester

17 September 2020

The ascent of electric carmaker is quite frankly mind-boggling. Even after the recent fall of more than 25 per cent, the stock is still up more than 400 per cent since the beginning of the year. That’s a big move, and it is no wonder why every statistical trading model in the world started selling the stock. The carnage that ensued was even more colossal. It is estimated that short sellers lost more than $25 billion on the recent move, regardless of how well they hedged, as nothing went up nearly as much. 

Chart: Tesla versus European Automakers 

Source: Bloomberg

We are hearing that so-called “Robinhood traders” are pushing the stock, as they perceived a recent stock-split to mean that the price was now “cheaper” than the day before. Remember what we discussed about checking for things that may have caused a big change in the price? Whatever the reasons may be, the stock price is what it is and by every measure it is the wrong price, so how should we trade this? 

Proceed with caution and whatever you do, always expect that it can get worse. In other words, this massive, glaring, super-humungous trade of the century, could get even juicer and TSLA could keep going up for longer. Timing is a female dog, so whatever you do, work with stop-losses. You can always get back in, but if you hold on for too long, you can also pay the ultimate price. 

Chart: Volkswagen stock performance during Porsche takeover attempt (2008)


Source: Bloomberg

Lest we forget, the last time we saw such a glaring mispricing of this sort was when Porsche tried to buy Volkswagen, making it briefly the most valuable company in the world. Word is, two people committed suicide shorting the stock at 900 and getting wiped out, before it settled back at around 200. Rather ironic that TSLA and VOW have both become known as the widow-maker trades. Maybe we should trade one against the other? I hear there are rumours of a takeover in the air. Stay safe!