Picture: CHRIS RATCLIFFE/BLOOMBERG
Picture: CHRIS RATCLIFFE/BLOOMBERG

New York — Tesla shares fell 6.3% in premarket trading on Monday as the electric vehicle (EV) maker marks its trading debut on the S&P 500 index.

Futures contracts on the S&P 500 plunged 2.5%, following European stocks lower after several countries moved to suspend travel from the UK amid concerns about a new strain of Covid-19.

Tesla has catapulted 731% this year in anticipation of the historic inclusion, making it the biggest company to be added to the benchmark. The EV pioneer will also be joining the S&P 100, replacing oil and gas firm Occidental Petroleum, which fell 12% premarket.

Traders who spent most of the year pushing up shares of Tesla in anticipation of surging demand from index funds saw its climax on Friday, as frantic purchases by passive managers drove the shares up almost 5% as exchanges closed. At the end of the day, Tesla shares closed at a high. More than $150bn worth of Tesla shares traded on Friday, ahead of the index inclusion.

“There is strong precedence for positive returns for stocks before S&P 500 inclusion and post announcement, but limited precedent for near-term outperformance post inclusion,” Sanford C Bernstein analyst Toni Sacconaghi wrote in a note earlier this month.

Market strategists have been divided on how the addition of the famously volatile stock would affect the benchmark gauge. According to Susquehanna quantitative derivative strategist Souhow Yao, the inclusion will have a limited impact on implied volatility, and that if Tesla was added a month ago, volatility for the S&P 500 would have decreased.

On the other hand, Interactive Brokers’ chief strategist Steve Sosnick said Tesla’s historic volatility suggests daily moves of about 4% up or down, and at its current market value can end up budging the index by about 2 points.

Bloomberg

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