You know we've been bulls for a while in Tesla (Nasdaq:TSLA). The inclusion announcement into the S&P 500 wasn't a shocker, but now that it's finally here there's some math to understand how big this Tesla stock buying spree is and how long it can last. I think the buying spree has a chance to last until... (drum roll) mid-January.

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Big Money Bears Have To Start Buying. This Can Drive The Stock For A While

First I'll explain my thinking and then I'll show you some math. If you run a fund that's trying to raise assets you want your fund to perform well against its peers and its comparative benchmark index that it pits itself against.

Because the S&P 500 is the biggest index around there's an enormous amount of funds that benchmark their performance against the S&P 500. Those funds need to be aware of what makes up their comparison benchmark index if they hope to outperform it. They are pros. They have to know their competition.

Much of the numbers thrown around about how much Tesla stock needs to get bought for the S&P 500 inclusion focuses on the passive fund buying. I'll get into that further on, but the bigger potential, I believe, is the "active managers" that are way underexposed.

Those active managers who don't decide based on a predetermined index but rather their own research finally have a hard decision about entering Tesla stock. Now it matters more to them because their competition (their benchmarked index they compare themselves against to would-be investors) is going to now have Tesla. The S&P is revving up with a hot performer now.

That Big Money bear avoided owning Tesla until now. But the fund's performance competitor is going to be invested in Tesla they have to decide more seriously if they have to align with their benchmark.

Said another way: If a Big-Money-Tesla-bear decides to stay out of Tesla in essence they are shorting Tesla vs. the performance of their benchmark. The benchmark index owns it and will go up with Tesla's help and the Big-Money-Tesla-bear manager would feel it's better that their fund doesn't hold it, so in essence is hoping Tesla stock underperforms vs. the other components of the index. But we all know that hasn't happened.

We've seen what happens to Tesla shorts. The get smoked. Sorry Tesla bears. Thankfully I've never been one. If anything we've just been putting out Street leading price targets on Tesla based on sound EPS X PE = target logic and our price targets keep getting hit, higher and higher.

But for Big-Money-Tesla-Bears it's decision time. Time to pony up even if it hurts or risk underperforming versus your key index. (I hope they're reading.)

And that's the bigger potential buying pie to come, bigger than passive funds.

How many Big-Money-Tesla-Bears are there?

I'm about to help you quantify it. It's, uh, huge.

And after we quantify it we can make a guestimate how long it's going to take them all to have to buy the stock they hate, just to keep pace with "their index."

Goldman surveyed their customers. This is going to be fun.

Goldman surveyed their customers to find out that out of 189 customers they tracked 157 of them had no Tesla position whatsoever.

83% of their surveyed customers had no position. I'm going to take a guess and say the other 17% may just as easily be underexposed. But that doesn't matter.

That Goldman survey sample measured a total of $500B in assets. The total amount of assets that use the S&P 500 as their benchmark according to the same article totals $6.7 trillion. That amount is larger than the amount of passive funds that automatically plan to match the S&P 500's Tesla weighting without much thought.

So while everybody's focused on the passive manager potential, I'm focused on the Big-Money-Bear potential for whom it's decision time. I would guess that the $500B Goldman survey probably correlates to some degree the total $6.7 trillion of active managers. Active managers have more discretion. Again, decision time for them.

I would guess also that the total $6.7 Trillion of assets, similar to the Goldman $500B is also way way way underexposed to Tesla.

As we talked about above all those Big Money Bears have a major business decision to make now.

Before they didn't have a business decision to make. If they didn't buy Tesla their benchmark index wasn't going to blow them out of the water with Tesla stock performance. But now that Tesla is in their competitive benchmark, by not being in Tesla, they are going to bet against Tesla?!

Said another way Tesla stock is up how much year to date? 5X? More?

How much is Tesla up over the last few years? Uh, Huge.

In hindsight if Tesla was in the index they would be automatically underperforming big on Tesla alone this year forget about past years.

Are they willing to take that risk against their benchmark in the coming 12 months? In the coming five years?

That's why they have a much more serious decision to make.

I think that Big Money Tesla bears are going to have to buy a 1% position. I worked at large funds and I can think back to them saying to their traders, "Get me to one 1% then let's talk." That's a basic position for a big fund. A round number "I'm there now let me think further."

That way they narrowed the underperformance risk right away even though Tesla's likely going to be more of the index as I show below.

If Active fund Big Money Tesla bears decide to get to 1% that buying will take probably a full lunar month, about 22 trading days.

And we didn't even talk about Passive funds yet.

That decision clock started ticking Nov. 17, the day after the S&P decided to include Tesla in the Index.

They may not need to be in the stock ahead of the inclusion date Dec. 21 but knowing there's buying coming and being a discretionary manager, why not get in now ahead of that buying.

Next Let's Talk About The "Smaller" Buying Pie, Passive Funds

Typically passive funds that track an index will buy a stock the day before the inclusion so as to match the indexes performance according to the date of inclusion. They don't want to buy Tesla before the inclusion date because they won't match performance of the index they track.

So does a rush of buying need to happen only the day before.

I don't think so and I'll explain. I think that rush of buying is now as I'll explain but that's not stopping from worrying the S&P 500 Index itself.

The S&P 500 themselves are so worried about a massive amount of buying that they felt the need to ask for advice in their Nov. 16 Tesla inclusion announcement.

Here's what they said,

"Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date."

They are telling you there is huge buying coming. Remember that huge amount of buying is the (I call it) "smaller" amount of buying from passive funds. They are not including the active manager Big Money Bears who are also underexposed in their concerns which only adds to the huge buying "concerns."

So needless to say Tesla's stock should have huge demand ahead.

So if passive funds don't need to own stock until Dec. 21 why should that matter now? It should only matter the "day before" inclusion or the two days before the two inclusions if the index decides to make two tranche inclusion dates.

The answer is, I believe that "friendly" brokers like Goldman Sachs and Morgan Stanley are likely buying up huge amounts of shares right now to "help" their clients position the day before. Then at the close the day before or at some time the day before the Tesla inclusion those "friendly" brokers will be doing their civic duty (for a fee of course) to present to their passive fund clients a giant block of Tesla stock "at the closing price."

When do the "friendly" brokers need to start buying to "help" their "needy" passive investor customers? Those "friendly" brokers need to start building inventory here and now.

And I don't think those "friendly" brokers have such a problem buying ahead of that date. Why? What could be better than buying a huge amount knowing you have a huge buyer to take that swath off your hands at a specific date? It's a layup trade for brokers right now. They'll probably have nice "trading profits" to report come earnings day before they unload their blocks to passive funds.

So I think there's a ton of buying here and now for passive funds by friendly brokers and by active Big Ol Tesla Bear funds that need something.

Now let's do some math. You can agree or disagree with me. This being on Tesla, uh I expect an amount of disagreement. I'm OK with that. Free country (depending on where you're reading this). But this is my take which I'm allowed.

Math: Free Look To Expect Big Buying

How much Tesla needs to get bought?

There are passive funds and active funds.

Here we go.

My conclusion though is there are a ton of buying still left to go for many more days.

I have until mid-January!!?!

As you know I have had a $774 12 month price target for a little while. I had big price targets before my new high-$774. I've typically been way ahead of the Street on Tesla's price target and bullishness.

I think we're going to hit that target much sooner based on this ridiculous amount of demand.

When I posted that target to you it was Nov. 11 at about $417. The stock's a touch bit higher (punch it up) since then well on its way to our $774 target.

And as you may know we've had huge targets for Tesla for a couple of years now way ahead of everybody except maybe Ark (But we weren't too far). Our 12-month target probably was inline with Ark's.

Now we've run a lot since then and still have big upside and at this pace the stock is going to hit our price target soon.

And with this amount of demand coming it could be visible. Here's my math as of today...

If you add what passive funds plus active funds need it will take 42 days of buying. I didn't assume holidays but assume there's 5 days in a week of trading they'll be buying 10% of the increased amount of volume until January 14th. That will get them to the positions they need, for now.

I used the amount 10% of volume because funds don't like bidding up stocks they need to buy. It hurts their future purchase prices. Based on my experience if a fund wants to own a stock aggressively the manager can tell the trader to buy a certain percent of the volume. In my experience that magic number request is to buy 10% of the volume if you have to own it or think it's going higher soon.

Knowing there are a ton of other funds that have to do the same thing, they are trapped. Prisoners dilemma, but they have not choice. They have to buy. If all the bears could mutually agree they'd agree to buy 10% of the volume. That's not realistic of course. But for this exercise's sake that's what I used to see how long it could take to buy everything everybody needed.

As Tesla's stock price goes up versus the index though more Tesla stock needs to get bought by the big money Tesla bears. So 1% is not enough. To match the S&P they'll need 1.5%. But because of the bidding up they may need more just to be even with their benchmark.

And for those that don't think those bears buy based on what they're telling you. I would guess they're buying anyway.

Conclusion

So we'll be able to keep track as we go how much has been bought and how much needs to be bought.

Tesla's jumping almost every day since the announcement. Based on the amount that needs to get bought based on the math above, we can see this continuing for a while.

As you know we've been big bulls on Tesla for some time. This is gravy on top to a Tesla lover, near term. Price targets can get met much sooner than expected.

And it's not passive funds that everybody thinks is the main driver to this real-time move. I think it's active discretionary big money bear funds that finally need to give in and get their foot in the Tesla door.