Option Volume and Tesla
This year, I finished my PhD at MIT. As I sat there thinking of what to do next and evaluating different opportunities, I was approached by a company I hadn’t heard of before — Susquehanna.
For people who haven’t heard of Susquehanna, it is a global trading and technology firm. It is probably best known for its expertise in derivatives pricing and trading, especially equity options. It is a designated market maker for a lot of stock and options. Essentially, if you go buy a call option on Tesla in your Robinhood account — the counterparty is likely Susquehanna.
Options volume in Tesla has exploded this year !
Normally when you buy options on a stock, it is not supposed to influence the stock price. However the counterparty like Susquehanna that sells options has to hedge their exposure.
Every large fund has to file a 13F every quarter disclosing their equity holdings. Tesla’s market cap today of 600B is bonkers. If you look at the 13F holdings of Tesla, it is striking that every major fund has reduced their Tesla exposure (ignore the PRN’s) except one (Susquehanna). Incidentally it is also the largest holder of Tesla other than Musk himself.
Susquehanna does not bet of stock direction, they are a market maker. Interest will remain in Tesla stock as long as it keeps chugging up but when that stops, option volume will fall, volatility will reduce and Susquehanna will just sell down its stake.
Stock price is set based on demand and supply. If and when option volume falls, demand for stock falls and so will the stock price. TL;DR My bet is that Tesla stock will finally take a fall after torrid rise.