"Trump&Musk" starts a feud, and after Tesla's sharp decline, retail investors double down on leveraged ETFs to buy the dip

Wallstreetcn
2025.06.10 07:26
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Last Friday, the day after Tesla's stock price recorded a historic drop, its double-leveraged ETF (TSLL) attracted $500 million in a single day, setting a record for the largest single-day inflow since the product's launch in 2022. However, this trading strategy only works if the stock experiences a violent rebound the next day; otherwise, it faces significant time value erosion and greater losses

Last week's unprecedented plunge in Tesla's stock did not scare off American retail investors; instead, they turned to a more dangerous betting strategy—buying double-leveraged ETFs to bottom-fish.

During the week of May 30, when Tesla fell 8%, retail investors went against the trend and bought over $4.4 billion worth of Tesla shares in a single week. According to Goldman Sachs, May 30 marked the largest single-day net buying volume in two months, while Nvidia faced its longest streak of selling since 2018, with a net outflow of $2.2 billion over 17 consecutive days.

However, the quick rebound that retail investors anticipated did not materialize. Last Thursday, as the dispute between Musk and Trump escalated to unprecedented levels, Tesla's stock price plummeted by 17%. UBS data showed that retail market-making clients in the U.S. experienced an outflow of $81 million that day, marking the largest execution trading volume for Tesla shares since September 2023.

Faced with massive losses from direct stock holdings, retail investors did not choose to give up but instead turned to a more dangerous battlefield: leveraged ETFs.

Data shows that on Friday, the day after Tesla's record drop, its double-leveraged ETF (TSLL) attracted $500 million in a single day, setting a record for the largest single-day inflow since the product's launch in 2022.

Chris Lucas from Goldman Sachs' ETF department pointed out that the assets under management of single-stock ETFs are primarily concentrated in three stocks: Tesla, Nvidia, and MicroStrategy. Any significant fluctuations in this "trio" will trigger sharp volatility in leveraged/inverse ETF trading volumes.

When Tesla was "bloodied" on Thursday, the assets under management of Tesla's single-stock ETF shrank by about $2 billion, pushing the total assets under management of single-stock ETFs to their lowest level since the end of 2024.

But on Friday, single-stock ETFs welcomed their second-largest nominal trading volume since their launch in 2022, with Tesla leading the way.

This operational model reveals a new logic for retail investing: When ordinary stock positions incur losses, retail investors not only do not retreat but also turn to leveraged products to double down, betting that the record sell-off will not last more than a day.This trading strategy only works if the stock experiences a violent rebound the next day; otherwise, it will face significant time value loss and greater losses.

For retail investors, the good news is that due to a slight rebound in Tesla's stock on Monday, TSLL has risen slightly.

This article is sourced from: Er Taofang Yanjiuyuan, original title: "After 'Trump&Musk' Clash and Tesla's Sharp Decline, Retail Investors Double Down on Leveraged ETFs to Buy the Dip"

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