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$TSLA am not an expert on shorting stocks, just your average Joe with a Casio calculator. But for the 1st time ever, the time looks ripe for a short. Let me elaborate. To start, if you read my previous post, it established a troubling fact pattern that is a good premise. (1/N)
Help me understand the passive selling argument. If Tesla share price falls it will have a lower weight in the index, but it falls as a proportion of existing passive fund holdings as well, in exactly the right proportions ... so why would they need to sell?
Yes, weighted by market cap. So...?
Like, if there are two stocks both $100 with 1mm shares each then index fund holds 50% in each. If one falls to $50 it now only has 33% weight in the index, but it is already only 33% of the fund holdings as well, because its price fell. Am I missing something?
If we consider ETFs that do sampling in their replication process- as the weight in the index decreases, the stock will contribute less to the tracking error, hence ETFs might as well get rid of it But if we consider full physical replication I don't see how you could be wrong..
I see, you mean a fund that deliberately doesn’t track its index like iShares R2k vs SPDR R2k? Yeah that could have an impact for some small stocks. But most large cap index funds try for perfect replication, and TSLA is one of the biggest stocks in the index!
The only reverse passive loop I see here is if we begin to see net huge outflows from passive funds but that’s a macro US equity flows/contagion question and not a Tesla or its share price question. Tesla could still be the prick that bursts the bubble so there’s that..
You’re assuming the fund’s volume remains constant. In reality there are flows to the passive funds. If one stock in the fund drops significantly, the fund buys less of this stock, reducing demand and increasing the weight of the sellers. Price drops further and loop continues.
The fund buys the same proportion of outstanding shares regardless of whether the price has gone up or down.
So @alexharfouche1 never responded to this but he did block me... 
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