Tesla stock volatility now a weapon for traders?
Single stock ETF of electric automaker gives Wall Street short and long positions on share value
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Tesla single stock exchange-traded funds (ETFs) are gaining steam on Wall Street, allowing active traders the short and long view on shares of the volatile EV company.
The stock price has yo-yoed for much of 2023, rising roughly 33% since Jan. 1, adding around 14% the last three months before falling approximately 14.5% the last month and near 12.3% the last week.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| TSLA | TESLA INC. | 311.18 | -19.06 | -5.77% |
The electric vehicle space remains speculative for most investors and "is still in the early stages of broader adoption", the managing director of Direxion, Ed Egilinsky, told FOX Business on Monday.
A Tesla vehicle drives past Tesla's primary vehicle factory in Fremont, California, U.S. May 11, 2020. (REUTERS/Stephen Lam/File Photo / Reuters Photos)
"The stocks within this category, including Tesla, have high risk to reward characteristics," he added. "Both retail and institutional investors have to weigh how much exposure is appropriate to any single stock within their overall equity allocation, especially to a volatile name like Tesla."
Currently, Tesla is a top 10 to 15 holding within both the S&P 500 and NASDAQ 100.
What are single stock ETFs and how can they help?
Introduced to U.S. markets last July, single stock ETFs offer inverse or leveraged positions on single securities like a Tesla, while also magnifying tactical views with daily 1.5X leverage and 1X inverse exposure.
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As nagging inflationary pressures push the U.S. Federal Reserve into more interest rate hikes and the major Wall Street benchmarks struggle to reverse their downward positions, single-stock ETFs give day traders complex exposure to one stock rather than to a diverse portfolio.
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"Designed for active traders, leveraged and inverse single stocks provide a short term bullish or bearish view and should be monitored daily," Egilinsky said.
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"Tesla stock generates headlines that may provide trading opportunities in either direction," he continued. "Along with Tesla's battery technology, the company is well known for its founder Elon Musk, self-driving cars, solar power and energy storage."
"Investors are hooked because of the diversification of products, Egilinsky added.
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Despite the popularity of single stock ETFs since coming to Wall Street last summer, SEC Commissioner Caroline Crenshaw said in a statement on July 11, 2022, that single-stock ETFs pose a risk for investors and the markets due to the increased stock exposure and daily rebalance.
People exit the headquarters of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C., U.S., May 12, 2021. (REUTERS/Andrew Kelly/File Photo / Reuters)
"In other words, investors’ returns over a longer period of time might be significantly lower than they would expect based on the performance of the underlying stock," she finished.