Thread by @FrankLeeSG

1/8

Delta hedging can be self-fueling yes. The "Mechanisms" blog post does a good job of explaining it. But in essence:

Buying pressure -> SP rise -> market makers need to buy more to delta hedge -> further SP rise -> and on and on.

It all depends on how many sellers show up.

2/8

The thing is that everybody, both analysts and actual shareholders, have wildly different price targets for . I myself wouldn't divest much at a SP of <$10,000.

Large institutions might not be that price inelastic, but fact remains that it's easy to make a case for...

3/8

sky high TSLA price targets, such as ARK's. Therefore, most investors may be unwilling to sell, even if the stock price goes up 50% in 2 weeks on no news, if their price target is much higher than the new stock price.

4/8

Therefore, it's likely that few sellers show up during rallies, so relatively little initial buying plus resulting further buying due to the delta hedging mechanisms, can cause monster rallies.

5/8

This is why can go on seemingly impossible rallies on little to no news, and what's caused:

1) Jan/Feb $400 -> $960
2) Jul $900 -> $1,800
3) Aug $1,350 -> $2,050 (thus far)

6/8

These mechanisms also work the other way. A drop in stock price means MMs will reduce their delta hedge inventory, or even short the stock, so it's also contributed to:

1) Feb/Mar $900 -> $350
2) Jul $1,800 -> $1,400

7/8

More details on these delta hedging mechanisms in this blog post:

The Mechanisms That Fueled TSLA's Meteoric Q1'20 Rise

teslainvestor.blogspot.com/2020/04/the-me…

8/8

And thanks to @ReflexFunds, who first brought these mechanisms to my attention on TMC in December of last year.