With the sharp rise in its share price, Tesla, Inc. has now joined the trillion-dollar market capitalization club. The electric carmaker's performance in the stock market is likely to be far more important and influential to financial markets than its market capitalization suggests, thanks to the large and complex market for related derivatives.

Tesla, Inc. 's share price has risen nearly 64% since the beginning of 2021 and now has a market capitalization of more than $1.1 trillion.This year alone, the company's market capitalization has increased by nearly $475 billion, equivalent to one Procter & Gamble Co company, one JPMorgan Chase & Co or two McDonald's Corp.

Some analysts sayTesla, Inc. 's broader influence may be unrivalled in history.Many investors-whether passive index funds, traditional mutual funds, hedge funds or ordinary retail investors-have no choice but to respond.

"We don't have enough words to describe Tesla, Inc.," said Michael Green, chief strategist at Simplify Asset Management. It's like explaining the concept of 'rising' to people in a two-dimensional world. "

Tesla, Inc. shares are widely sought after among ordinary retail investors, but the expansion and activity of Tesla, Inc. options also surprised many market veterans.

Goldman Sachs Group's data showIn recent weeks, the nominal trading value of Tesla, Inc. options has averaged $241 billion a day.By contrast, Amazon.Com Inc, the second-most active individual stock options market, is worth an average of $138 billion a day, compared with $112 billion for the rest of the S & P. Due to the leverage effect of option trading, Tesla, Inc. shares are more likely to be washed out.

Michael Golding, the US head of Optiver, a trading firm active in the options market, said:

The trading volume of Tesla, Inc. options has always been very large, but now it is very spectacular. Tesla, Inc. almost represents a generation. In the era when option trading took off, it represented innovation.

The Tesla, Inc. options market, which is almost seven times the size of the European Stoxx 50 index options market, has helped push the volume of options trading in the United States this year to exceed the actual volume of stocks.

Nominal option trading volume was 50 percentage points higher than stock trading volume in November and would have been 20 percentage points lower without Tesla, Inc. and Amazon.Com Inc, according to Goldman Sachs Group. Goldman Sachs Group said in a report:"High market capitalization and unusual option activity have made Tesla, Inc. a key driving force. "

Historically, overall stock option trading activity in the US has been 10 to 20 times higher than in the largest individual stock option market, according to Golding estimates. In recent days, however, Tesla, Inc. has traded five to six times more options than the rest of the S & P 500 combined. Golding said: "there is no doubt that the scale of Tesla, Inc. 's options market is huge. "

Analysts point out that the value of options depends on the performance of the underlying stock, but because of its complex mechanism, if option activity is active enough, it may even in turn affect the broader stock market, exacerbating market volatility and making it harder for many investors to navigate.

Dean Curnutt, CEO of Macro Risk Advisors, saidThe continuous expansion of Tesla, Inc. 's stock and options markets is one of the reasons why the recent VIX volatility index deviates greatly from the actual volatility of the US stock market.Tesla, Inc. "changed the pricing method of market risk".

Who bet on Tesla, Inc.?

Ordinary retail investors have always been the main force behind Tesla, Inc. 's options craze.But some of them have more resources to make bigger leveraged bets on Elon Musk's company.

IT billionaire Leo KoGuan recently said he had held nearly 7.2 million shares of Tesla, Inc. as of early November. These stocks are mainly accumulated through the massive purchase of Tesla, Inc. call options. That would make him Tesla, Inc. 's third-largest individual shareholder after Larry Ellison, co-founder of Musk and Oracle Corp.

Golding said: "he has done a lot of options trading, we can definitely see his footprint in the market, he is inspiring others." It's like he's waving Tesla, Inc. 's flag, and people on Reddit see him as someone to follow. "

Tesla, Inc. 's popularity and stock price volatility have also begun to make it an integral part of some structured investment products.For example, "automatic redemption" investment products, which are particularly popular with Asian investors, banks build attractive bond-like fixed income by selling stock options.

Tesla, Inc. has become a popular option, says Simplify's Green: "Tesla, Inc. is considered safe because it is large and technologically advanced, and given its volatility, investing in structured products (for investors) is very profitable. "

The astonishing rise in Tesla, Inc. 's share price has also encouraged asset managers such as Ark Invest and Baillie Gifford to take heavy positions in the company.

Cathie Wood, founder of Ark Investment and known as the "goddess of stock", recently said that if Tesla, Inc. becomes the first US company to succeed in self-driving, it is expected to win 20 to 25 per cent of the market share of the vehicle market within five years. She predicts that Tesla, Inc. 's share price will hit $3000 in 2025.

However, there is also the opposite situation, some people think that Tesla, Inc. 's valuation has been frantically raised, thus underallocating the stock.Us mutual funds focused on growth stocks lagged behind in October after their worst round of performance in at least two decades, mainly due to Tesla, Inc. 's rise.For the entire US mutual fund manager, Tesla, Inc. alone wiped 0.46 percentage points off their relative performance in October, making a mediocre year when earnings were expected to be good, according to Wells Fargo & Co analysts.

The price of shorting Tesla, Inc.

Shorting Tesla, Inc. has made some investors suffer.Hedge funds that have shorted Tesla, Inc. 's shares have lost more than $60 billion over the past decade, according to financial analysis firm S3 Partners. Losses this year alone have reached $11 billion.

Drew Dickson, chief investment officer of Albert Bridge Capital, said: "the managers who reduced their holdings of Tesla, Inc. must have been punished. For many people, this is a major factor leading to poor performance. You have to suspect that many of them now hold it simply for fear that they will fall behind. "

The data from S3 Partners also showTesla, Inc. 's short position as a share of the company's total shares available for trading has fallen from 19.6 per cent in early 2020 to 3.3 per cent in mid-November. Over the same period, the number of Tesla, Inc. shares shorted fell nearly 80 per cent to 27 million shares.

Industry insiders say this shows that fund managers are now reluctant to risk their careers by shorting a stock that has long ignored financial gravity.

Michael Burry, a hedge fund manager and well-known "big short", gave up shorting Tesla, Inc., according to third-quarter trading data released by the Securities and Exchange Commission. Burry revealed in an interview with the media in October that he was no longer bearish on Tesla, Inc., after he said Tesla, Inc. 's share price was "outrageous" last year.

The bubble under the aura of Tesla, Inc.?

The success of Tesla, Inc. 's shares has also contributed to what some analysts and fund managers believe is a broader bubble in the field of electric vehicles.

The total market capitalization of the index of electric vehicles and battery companies compiled by the Financial Times is close to $1.8 trillion. Even with negligible revenues and no profits, Tesla, Inc. 's imitators Rivian and Lucid are now valued at about $110 billion and $90 billion, respectively. By comparison, the world's leading carmakers, such as Toyota, Volkswagen and Hyundai, have market capitalizations of $254 billion, $135 billion and $42 billion, respectively.

Benjamin Bowler, equity derivatives strategist at Bank of America Corporation, said:"thanks to Tesla, Inc., anything related to electric cars obviously has a huge halo effect. "

Analysts believe that if Tesla, Inc. 's share price continues to climb, it will bring more wealth to its followers and drive the entire stock market higher. However, if its share price falls sharply, it could also cause far more ripple effects in financial markets than many expected.

Affected by Musk's tweets, Tesla, Inc. 's share price fell as much as 17.6% in November and then rebounded. While the pullback did not have a broader significant impact, Albert Bridge's Dickson cautioned: "Today, valuations of many things are characterized by huge, recursive 'primary and secondary reversal'. I firmly believe that in the end, fundamentals are the most important.But in the past few years, I can see that the short and medium term is more dominated by capital flows, kinetic energy, memes and preferences.」