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Tesla’s surge inspires fans to buy, skeptics to dig in, drives fear of missing out

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The electric vehicle maker’s stupendous rally in recent months has given shareholders something to cheer about, cost short-sellers billions of dollars and vindicated legions of retail investors who have long adored Elon Musk’s company.

Tesla shares have soared by nearly 320% since early June, helped by the company’s better-than-expected financial results and ramped-up production at its new car factory in Shanghai.

After surging 36% over Monday and Tuesday, the stock by Friday had settled back to a gain of about 15% for the week. On Friday afternoon, it was down marginally at $747.11.

Another factor driving this week’s surge may be fund managers hurrying to raise their allocation of the stock, analysts said.

“A lot of advisors and institutions, they jump in the bandwagon because they don’t want to trail,” said vocal Tesla bull Ross Gerber, president and chief executive of Gerber Kawasaki in Santa Monica, California. “If Tesla goes to $1,000 and they don’t own it, what are they going to tell their clients?”

Gerber trimmed his fund’s position in the stock as the company’s valuation soared. He hopes to buy more if the stock falls and said a fair valuation would be around $550.

THE BULLS

Retail investors have driven part of the surge.

Among Fidelity Investments customers, Tesla has been by far the most actively traded stock in recent sessions, with nearly 16,000 buy orders for the electric carmaker’s shares. Twitter, ranked second overall in trading activity on Fidelity, had just over 2,000 buy orders.

On Monday, when Tesla shot up 20% in its biggest one day rally since 2013, clients at TD Ameritrade – millennials in particular – overwhelmingly took profits after having bought the stock for months, said JJ Kinahan, chief market strategist at the online brokerage.

Tesla’s biggest institutional shareholders are Baillie Gifford, Capital World and Vanguard, according to Refinitiv data.

It also has an international following. Retail investors in South Korea have been trading Tesla shares at a furious pace in recent weeks, buying and selling $200 million worth of stock in January, according to the Korea Securities Depository. Volume in November stood at $43 million.

Tesla options positioning is also bullish. According to data from options analytics provider Trade Alert, skew turned deeply negative this week, meaning that demand for calls, used to position for further share gains, has surpassed demand for puts, used to guard against a fall in shares.

That’s a departure from the usual dynamic in most stocks, in which options used for downside protection generally command prices higher than those for upside participation.

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