Tesla Trade Idea December 2020
Tactical Trade for Dec- Indices – S+P 500
3Sigma Markets was built on the premise of providing our client base with more – more education, more market moving insights and content. With this concept in mind we will be providing our trading community with insights into the live trading portfolio @ 3Sigma Markets – a trading account managed by our 3Sigma Markets traders. We will keep you up to date with our trading views over the course of the week and months ahead, letting you know what we feel is hot right now and what we are looking to add to our portfolio of trades across all asset classes. Some of these trades will be short term opportunities in the market, whilst others will take a more medium/long term view of how we feel things will play out globally. We have to stress that this is not investment advice and only our opinions. It is simply an insight into the preferred trades of 3Sigma Markets and their traders at that time.
Portfolio up-date
We remain Dollar bears and hold Dollar short positions into the New Year v’s AUD, CAD, NOK and EURO on a medium term basis. We would now like to add an indices trade to our portfolio for Dec 2020.
This indices trade is in the S+P 500 or US 500 (CFD) – which is how our clients can trade this index with 3Sigma Markets.
On Dec 21st TSLA will be added to the S+P 500. This is a giant addition to the index, of which there have been many over the years. Tesla will have a 1% weighting in the index and as can be seen from the table below its hugely significant from a weighting and market cap perspective.
| Company | Addition Date | Weight (%) | Float Market Cap of Add (billions) |
|---|---|---|---|
| AOL | 4-Jan-99 | 0.73 | 73 |
| Yahoo | 8-Dec-99 | 0.78 | 92 |
| Qwest | 6-Jul-00 | 0.76 | 95 |
| JDSU | 27-Jul-00 | 1.00 | 127 |
| UPS | 22-Jul-02 | 0.96 | 75 |
| GS | 22-Jul-02 | 0.47 | 37 |
| 3-Apr-06 | 0.67 | 79 | |
| BRK/B | 16-Feb-10 | 1.31 | 127 |
| 23-Dec-13 | 0.56 | 91 | |
| Tesla | 21-Dec-20 | 1.0 | 304 |
We have looked into these large inclusions into the S+P over the years and we believe we have an actionable trade for our Sigma Markets trading portfolio. The premise of this trade lays in the fact that large new inclusions into the Index leads to selling pressure in the overall index in the lead up to that addition. This is because larger investment funds indexed to the S+P will have to raise money by selling other constituents of the index in order to buy TSLA shares and get their overall weighting correct. It is estimated that that demand for Tesla shares would generate around $50 billion of supply in other sectors of the index. The interesting aspect of this trade is the S+P 500 has tended to sell off on the lead up to a large inclusion and then rally back higher in the days preceding the addition. So the idea behind this trade is to take advantage of the of this flow dynamic – we have gone short the S+P500 through a CFD – US500 at 3,655. We will look to remain short into the 21st Dec, when we will buy back our short and go long, looking for a mean reversion move higher of the preceding days.
Actionable Trade Insights – Summary
- We have sold the S+P 500 @ 3,685
- Stop loss on our short position @ 3,720
- Buy back our short position into Dec 21st when TSLA is added to the S+P 500
- Go long the S+P 500 on 21st Dec, looking for a move back up towards 3,700 in the preceding days.
(We have to stress that this is not investment advice and only our opinions)
