Introduction
Retail investors are capitalizing on the recent decline in Tesla shares, prompted by a public feud between U.S. President Donald Trump and Tesla CEO Elon Musk. This situation has created an opportunity for stock purchases amidst the volatility.Context
On Thursday, Trump escalated tensions with Musk by threatening his companies, which has contributed to the deterioration of their previously strong relationship. The discord between these two high-profile figures played out across competing social media platforms and also revolved around Trump's expansive tax-cut proposal. Tesla's stock experienced its 11th worst daily drop since its public debut in June 2010.Developments
Despite the turmoil, Tesla shares saw an unexpected rebound, rising to $299 by mid-afternoon on Friday. Retail investors were notably active, accumulating a net $201.3 million in Tesla stock on Thursday alone, leading to a combined trading volume of $2.6 billion. This surge made Tesla the second most-purchased stock of the day among retail investors.Marco Iachini, senior vice president of research at Vanda, noted that Tesla has been an attractive option for retail investors, particularly during significant price drops like the 14% decline seen recently. Many investors also turned to leveraged exchange-traded funds, with the Direxion Daily 2x Bull ETF attracting a net $41.5 million in buying activity.
Meanwhile, the options market for Tesla revealed stability amid the upheaval, with Chris Murphy from Susquehanna International Group providing insights that highlighted the absence of significant volatility increases. Selling put options by traders indicates a belief that the stock price might stabilize or recover.
Tesla's 30-day implied volatility, which reflects anticipated stock movement, peaked at 77 on Thursday, significantly lower than the 106.1 level witnessed during the broader market selloff in early April. By Friday morning, as Tesla stock rose to $299.14, implied volatility decreased to 68.
Steve Sosnick, chief strategist at Interactive Brokers, suggested that current conditions do not yet signal a major cause for concern. Iachini further analyzed commentary regarding Tesla on social media platforms like Reddit and X during the selloff and found a prevailing bullish sentiment among users, indicating strong confidence in the stock.