Tesla Up 50% In A Month: Is The Stock Set Up For A Short Trade?

Tesla Inc (NASDAQ: TSLA) is now up a whopping 52% in the past month, adding about $400 billion to its market cap. The extreme move comes after a .2 billion deal to sell 1,000 Model 3’s to Hertz Global Holdings Inc (OTC: HTZZ).

Tesla’s Big Move: Tesla CEO Elon Musk is seemingly one of many people somewhat puzzled about how a $4.2 billion deal could generate $400 billion in gains for Tesla stock.

“Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics,” Musk tweeted.

DataTrek Research co-founder Nicholas Colas said it’s understandable that short sellers may see an opportunity to short Tesla stock after its extreme move higher. In fact, Tela has outperformed the S&P 500 by about 77% in the past 100 days, a performance that may seem like an opportunity for a mean reversion trade at first glance.

History Of Volatility: However, Colas said Tesla has historically been extremely volatile relative to the S&P 500. In fact, over the past 10 years, Colas said Tesla has averaged a 25% outperformance over the past 10 years over any given 100-day period with a standard deviation of 61%. In other words, the one standard deviation relative return band for Tesla relative to the S&P 500 is -36% to +86%.

Strangely, Tesla’s relative volatility hasn’t shrunk even as the company’s market cap has exploded higher.

“Don’t short Tesla here. Crazy as it sounds, the stock’s recent rally is pretty normal action for this name,” Colas said in a Tuesday note.

Benzinga’s Take: Tesla is an extremely volatile and unpredictable meme stock that often trades higher or lower based on momentum and investor sentiment rather than the performance of Tesla’s underlying business. Tesla bulls seem content to keep buying the stock hand over fist at any price, making any short selling an extremely high-risk endeavor.

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