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Could The Archegos SEC Investigation Solve The Tesla Gamma Squeeze Mystery?

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by quoth the raven
Monday, Oct 11, 2021 - 16:23

(Submitted by Quoth the Raven at QTR's Fringe Finance)

I can’t help but wonder if an SEC investigation into manipulation at Bill Hwang’s disgraced Archegos Capital could answer some longstanding questions I’ve had about Tesla’s mysterious and meteoric risk throughout 2020.

Let me say right off the bat that correlation isn’t causation and other such disclaimers.

I’m writing this piece the same way I Tweeted about Tesla in December 2019, prior to Covid, when I saw the first lot of major, far out of the money call options go off in the name: on a hunch, and based on opinion.

I said back then that the call buying in Tesla simply looked odd. I had watched tape and the options market for almost 10 years and had seen unusual options activity before. But these buys - so far out of the money and so far dated - just seemed weird to me.

I first mentioned how weird it was back in January 2020:

In April 2020, the call buying had hit a fever pitch:

Then, Zerohedge tackled the issue in May 2020, in a piece called “Are Mysterious Call Option Purchases Forcing Tesla Stock Higher?”

The article examined one such buy, where over $2.5 million was deployed in a very short term, very out of the money options buy. The piece explained exactly how certain call buys in the name may have been creating a squeeze upward in the equity price.

From there, it became somewhat of a talking point in the normal FinTwit zeitgeist, but no one (myself included) really tackled the work necessary to try and determine who the buyer could be and what motivation, other than of course simply being bullish, they may or may not have had for such purchases so far out on the bell curve.

By mid-2020, it started to become somewhat of a story.

Source: Marketwatch

“Actually... someone is buying a LOT of 8/21 $2,100 call options. This has been going on a LOT (i.e., someone buying way out of the money short-dated call options, which forces the person writing these options to buy stock), which has pushed the stock up consistently,” GLJ Research founder Gordon Johnson told Benzinga in Summer 2020.

And of course, you didn’t need to be a statistician to understand that the action in Tesla’s stock was anything but normal looking compared its history.

This is how things looked by December 2020:

And despite Tesla having a $60 billion market cap in 2019, this is what headlines in 2020 and 2021 looked like as a result of the squeeze higher:

Source: Bloomberg

It wasn’t only Elon Musk who was benefitting from Tesla’s mysterious rise higher, either. One asset manager literally became a “disruptor”, taking in tens of billions of dollars under management, as a result of her concentrated bet on the electric vehicle company.

Source: Barron’s

I would spend endless time speculating as to who - and why - such major purchases of Tesla call options would go off. I would question whether or not I could literally be the only person who thought it was noticeable. I tipped a couple journalists off about possibly looking into it, but no one wanted to tackle the jargon of the options market to figure it out. Like everyone else, I was preoccupied with Covid in 2020, so it was there where I let the issue rest and just hoped for the best.

Now, fast forward to early 2021, where things only got weirder...(READ FULL ARTICLE HERE).

 

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