Retail traders scooped up Tesla as Trump-Musk spat hit stock

Tesla's stock plunged 14.3% on Thursday amid a public feud between Elon Musk and Donald Trump, prompting retail investors to buy the dip, scooping up a net $201.3 million of Tesla shares, making it the second most actively purchased stock by this investor group; the stock rebounded 5.6% to $299 on Friday, with options market activity suggesting limited panic and social media sentiment remaining bullish, signaling continued risk appetite among retail traders.

Analysis

A public dispute between U.S. President Donald Trump and Tesla CEO Elon Musk, triggered by disagreements over a tax-cut bill and escalating to Trump threatening to sever government contracts with Musk's companies, led to a significant 14.3% drop in Tesla's (TSLA.O) stock on Thursday, its 11th worst daily performance since its 2010 IPO. This sharp decline prompted substantial buying activity from retail investors, who, according to Vanda Research, purchased a net $201.3 million of Tesla shares, making it the second most-actively bought stock by this group on that day after $2.6 billion in total transactions. This behavior, described by Vanda's Marco Iachini as indicative of retail investors' renewed risk appetite and preference for Tesla, contributed to a 5.6% stock rebound to $299 by mid-afternoon Friday. Bullish sentiment was further underscored by $41.5 million in net purchases of the leveraged Direxion Daily 2x Bull ETF (TSLL.O). The options market showed limited signs of panic; traders were reportedly selling put options, suggesting expectations of a slowing or reversing stock decline, according to Susquehanna International Group. Tesla's 30-day implied volatility increased to a six-week high of 77 on Thursday, well below an early April peak of 106.1, and subsequently fell to 68 on Friday, a level not deemed a 'real warning sign' by Interactive Brokers' chief strategist. Social media analysis indicated an overwhelmingly bullish 'buy the dip' sentiment among self-directed investors. This volatility occurred as Tesla shares have declined approximately 37% from their December 17 peak, despite an earlier surge following Trump's November 5 election.

Key Decisions for Investors

• Investors should closely monitor the political developments stemming from the Trump-Musk feud, particularly any actions related to government contracts for Musk's companies, as this presents a tangible risk factor for Tesla.
• While the strong 'buy the dip' sentiment from retail investors and supportive options market activity (put selling) may offer near-term price stabilization for TSLA, the sustainability of such retail-driven momentum warrants careful observation.
• Consider the recent 37% decline from Tesla's peak and the prevailing speculative sentiment when assessing entry points or adjusting positions, and note that while current implied volatility is not at extreme highs, it reflects an environment of uncertainty.