Don’t Overlook The Vampire Squid’s Role In The Recent Tesla Call Buying Frenzy

“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” -J. Paul Getty

It’s hard to believe that it was over a decade ago that Matt Taibbi published his famous Great Financial Crisis post-mortem for Rolling Stone centered around the role played by Goldman Sachs. It opened, “The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” I would say that there is plenty of evidence that this still holds true today.

Over the past couple of months, I’ve tried to chronicle here the speculative feeding frenzy in the options market that has seen volatility indexes surge along with stock prices and helped to power markets higher in the face of the worst economic decline in modern times. And, in the process of looking for clues, Goldman’s name has come up at every turn.

Tesla, a Goldman client, has been the focus of much of the call buying that has driven these trends. At its recent high, the stock had risen 800% from its March low even as revenue fell 5% in its most recent quarter so it’s clearly not fundamentals driving the share price. No, as many have now demonstrated (most notably Luke Kawa back in February), massive call buying acts as a sort of manifest destiny that creates the higher stock prices call buyers envision. This happens by way of the options dealers who are forced to buy the underlying shares as a hedge against they calls they sold.

Anyhow, it turns out that Goldman recently profited $100 million from its own buying of call options on Tesla shares. Clearly, they understand how this game is played and couldn’t resist getting in on the action. However, it also turns out that Goldman (along with Morgan Stanley) was the lead underwriter on Tesla’s February stock offering. As such, it was entitled to buy hundreds of thousands of shares back then before the latest surge in price. Shortly thereafter the firm saw fit to put a buy rating on the shares that kicked off its glorious rally over the past several months.

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Disclosure: Information in “The Felder Report” (TFR), including all the information on the Felder Report website, comes from independent sources believed reliable but accuracy is not ...

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