macrocephalopod

$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?

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.

As the price falls, the same fund inflows result in less and less buying in $ value, and the price only needs to fall relative to the index for this effect. I expect Mike has the details in his white papers.

Yes, and as I said in the tweet you are replying to, the fund will buy the same percentage of free float of every stock in the index, it won’t buy a smaller percentage of the ones that fell in price. 1/2

Are you claiming that larger $ buying on its own leads to more price impact? If so, why isn’t the price of Apple shares (6.5% weight) constantly being pushed up 6500x more than Under Armour shares (0.01% weight)?

6.5/.01 = 650, and yes that is ratio of ETF inflows to those names. $TSLA is 1.7% of $SPY. Every $1M into the ETF results in $17k into TSLA. If TSLA falls 50%, then the same inflow will result in $8.5k of TSLA buying, half as much as before. As price, passive buying.