- The meteoric rise of Tesla and its inclusion into the S&P 500 means Elon Musk represents “key man” risk to the stock market, DataTrek said in a note on Thursday.
- “Tesla is 2% of the S&P 500, large enough to drag down the index if something were to happen to him,” DataTrek co-founder Nicholas Colas said.
- Investors can buy “key man portfolio insurance” via Tesla puts with a $50 strike price and 2022 expiration date, the note said.
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Elon Musk has become such an outsize presence to investors following Tesla’s meteoric rise that he now represents “key man” risk to the stock market, DataTrek said in a note on Thursday.
“We wish Elon a long and happy life, but we also have to acknowledge that he is also a huge ‘key man’ risk to US equity markets,” DataTrek co-founder Nicholas Colas said.
The risk is apparent given that Tesla now makes up 2% of the S&P 500, meaning the markets could drag lower if Tesla stock falls.
There are few historical comparisons to a founder like Musk who is systemically important to his company “with no heir apparent,” DataTrek said, pointing to Apple’s Steve Jobs and John Pierpont Morgan of JPMorgan.
“At least Steve Jobs had Tim Cook,” DataTrek said. And Morgan’s backstop of US equities during a market crash in 1907 ultimately led to the US government’s creation of the modern Federal Reserve, according to the note.
"One man played Atlas in 1907, and while Musk doesn't fulfill that grand a mandate today, he certainly seems a lot closer than any other human being," Colas said.
Musk's influence on markets and investors has been strong recently, given that a single tweet from him has moved both stocks and cryptocurrencies like bitcoin and dogecoin.
On Wednesday, Musk tweeted that he bought dogecoin for his son, sparking a 16% surge in the crypto. And today, a Musk tweet helped add $2,000 to the price of bitcoin.
Investors can buy "key man portfolio insurance" via Tesla put options, Colas said, pointing to the January 2022 puts with a $50 strike price, which trade for $0.65.
"That's a good proxy for what it would cost to buy 'key man portfolio insurance' on Musk," Colas said. Tesla at $50 would value the company at about $50 billion, "which is a reasonable stab at what Tesla ex-Musk might be worth," Colas said.
"Again, we hope Musk lives to be 100 and remains in good health until his centennial. This is just a what if," the note concluded.