Tesla unlikely to drive up volatility on S&P 500, analysts say

The electric carmaker will join the S&P 500 on Monday after rallying nearly 700% this year
Last Updated : 19 December 2020, 03:10 IST

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Investors have worried that including Tesla Inc's notoriously volatile shares in the S&P 500 will exacerbate gyrations in the broader index, but some analysts say that's unlikely to happen.

The electric carmaker, which will join the S&P 500 on Monday after rallying nearly 700 per cent this year, ranks near the highest in implied volatility - or expectations for stock moves embedded in options prices - on the index.

Still, analysts say Tesla's shares will have a miniscule effect on broader market gyrations, based on past activity. If Tesla had been added to the S&P 500 on Thursday, it would have increased one-month implied volatility on the benchmark index by just 0.15 points, to 17.08 from 16.93, according to Susquehanna.

"We do not think it is going to have a huge impact," said Christopher Murphy, Susquehanna's co-head of derivatives strategy.

UBS strategist Stuart Kaiser concluded similarly regarding Tesla's effect on broader S&P 500 volatility in a research note distributed last month. Had the stock been included in the S&P 500 all year, it would have increased implied volatility on the benchmark index only by 0.12 points on average, he wrote.

Meanwhile, by some measures, Tesla's options have shown greater calm recently.

Tesla's 30-day implied volatility has dropped to about 82 per cent from just below 95 per cent last Friday, according to data from options analytics provider Trade Alert.

Exuberance among buyers of Tesla options has also faded somewhat. Tesla's skew has turned positive in the past week, according to Trade Alert, showing that speculative demand for bullish call options on the carmaker has eased up in comparison to protective put options.

Published 19 December 2020, 03:10 IST

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