There is a single-stock ETF that allows anyone to short Tesla stock now.
Chris Delmas/AFP via Getty Images
Tesla investors have a new way to play the electric vehicle maker in the U.S.—single-stock exchange-traded funds.
This past week, AXS Investments launched bearish and bullish single-stock ETFs for Tesla (ticker: TSLA), plus similar ones for Nike
(NKE), Nvidia
(NVDA), PayPal
(PYPL), and Pfizer
(PFE). These ETFs are exactly what they sound like, and reflect the performance of individual stocks.
Investors might wonder why should they buy single-stock ETFs, especially when they’ll also have to pay regular fees to ETF managers. However, some of these ETFs let investors do things typically reserved for the pros.
Another potential benefit? The bearish single-stock ETFs are designed to go up more than the underlying stocks themselves. It’s similar to when investors short stocks by borrowing shares they don’t own and selling them—and make money when stock prices go down.
Consider the AXS 2X NKE Bull Daily ETF (NKEL): If Nike stock goes up 1%, the ETF should rise 2%. AXS uses financial derivative contracts to make that happen, and handles complicated trading so retail investors can simply click once and put a leveraged position on. The ETF even performed better than designed on Friday, gaining 4.5% as Nike shares climbed just 1.4%. There will typically be some small differences between designed performance and reality based in the price movements of the derivatives versus the underlying stocks.
Bearish single-stock ETFs are less risky than shorting stocks, too. If an investor shorts a stock at $1, he or she will lose $9 if that stock goes to $10 and $99 if that stock goes to $100. With the bearish single-stock ETFs, an investor can only lose their original investment.
Shorting stocks in a retail brokerage account isn’t always a simple thing on the administrative side, either. Investors usually have to deal with extra forms to fill, extra stock borrowing fees, and locating actual shares to buy and sell.
The controversial Tesla is a natural choice for a bearish single-stock ETF. The difference between the top and bottom Wall Street price targets is more than $1,500 a share—or more than 200% of the current stock price. Compare that to the bull-bear spread for Microsoft (MSFT), which is about $200, or less than 100% of the current $256.72 stock price.
On Friday, the AXS Tesla Bear Daily ETF (TSLQ) dropped 0.6%, while Tesla stock itself climbed 0.7%. That’s a small difference, but the ETF looks like it worked as intended. Overall, it was a bad day to short stocks, with the S&P 500 and Dow Jones Industrial Average gaining 1.9% and 2.2%, respectively.
Write to Al Root at [email protected]
