Tesla (TSLA) shares flipped into green territory after trading roughly 2% lower this morning. The electric vehicle maker is planning to offer $5 billion worth of stock ahead of its inclusion in the S&P 500 (GSPC) later this month. This is the second time in about 3 months the company will take advantage of its sky-high stock price to raise capital.
“I think this is going to be a real bellwether in the market. There are so many different layers in this stock. It’s like peeling the onion to a certain extent,” said Steve Sosnick, chief strategist at Interactive Brokers.
Sosnick believes this is a logical time for the company to announce an offering since its stock is up 55% since the news of inclusion in the S&P 500.
“That way outpaces the amount of stock that needs to be bought by even the most outrageous amounts of indexing money,” said the strategist.
“Does this mean there's a buying climax in Tesla? I think so, but it's very hard to gauge. Anybody who has bet against the stock in the past has been decimated. So it's a tough call to make,” said Sosnick
The stock has rallied following most of its major developments this year, including back to back quarterly profits, its 5-for-1 stock split announcement, and most recently the index addition.
“I do think that's sort of the last great catalyst that we see for at least for now in the stock,” he added.
Sosnick advises against shorting the stock going into the S&P 500 inclusion on December 21.
“I would not be willing to short it necessarily aggressively before the addition,” said Sosnick, “I just think that between the speculative sentiment and the actual real buying that has to go on, it's a dangerous short.”
Following the addition, investors may see the potential for a “buy the rumor, sell the news” setup.
“You’re going to have this fine climax. You have a lot of speculators who front-ran this and not all of them are going to be able to get out at the prices they want to, that could have a hangover effect for the few days and weeks after that,” he added.
On Monday, the stock touched all-time highs, rising above the $600 billion market cap level for the first time.
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre
Arrival, the latest EV company set to enter the public markets
NIO earnings: Chinese EV maker beats on revenue in the 3rd quarter