In a post back in March (Tesla Crashes), we shared a theory our friends at SqueezeMetrics had presented last December, that S&P 500 inclusion would doom Tesla (TSLA):
Since Tesla stock is driven by the returns on call options, it is a slave to "vanna": the relationship between option prices (implied volatility) and delta (stock exposure).— SqueezeMetrics (@SqueezeMetrics) December 17, 2020
In other words, since June, $TSLA goes up only when implied volatility (IV) goes up (purple line is IV). pic.twitter.com/P2d2gmCYi6
When Tesla joins the index, these historic call option flows and the hype machine behind them will hit the big red fire truck that is the S&P, at 500mph— SqueezeMetrics (@SqueezeMetrics) December 17, 2020
Implied volatility will be unable to rise. Call options will bleed value. New flows will be absorbed by real traders.