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Daily Brief - Ever heard of the “Tesla Financial Complex”? (Nov 24, 2021)

If you want proof we’re experiencing a late-stage bubble, just look at this gem:


We don’t really have the language to describe Tesla any more. It’s like explaining to a person in a two-dimensional world the concept of ‘up’.” - chief strategist at Simplify Asset Management.


The tone reminds of other flights of fancy used during the dot.com to rationalize an irrational market. Anybody remember option-based valuations?


Talking about options, that’s what makes TSLA unique. Tesla is the stock with the highest participation of retail traders, which were able to propel it “to the moon” thanks to the very simple mathematics of option trading.


If you have $90 in your pockets you can buy an option on a share of TSLA. That’s cheaper than buying the share itself, which costs $1,100. Effectively, your purchasing power got magnified by 10x.


When this is done on mass scale by an army of retail traders, it generates momentum. Momentum then pushes market makers to buy more TSLA shares - to hedge the options they sold to the retail traders! And so the cycle continues.


There’s nothing new in this concept except the scale: the market for options for TSLA is as big as the market for options of ALL other stocks in the S&P 500.


So maybe the chief strategist quoted above is not wrong after all - TSLA is unique, the foremost poster child of the bull market that started with Draghi’s “whatever it takes”.


It might be a hard pill to swallow for value investors, but it’s impossible to time when a stock like this stops its meteoric rise.


(footnote: we’d be remiss not to mention that our Daily Brief from November 3rd called TSLA’s top one day beforehand...but we’ll be the first to acknowledge that TSLA could rise well beyond the peak of Nov 4th)