Question about the mechanics of ETFs

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David's faith

David's faith

This is an exempt from Zerohedge, an interview with an ex CBOE Floor trader:

"Tesla is a holding in over 200 different ETFs - when TSLA stock goes higher all these ETFs need to buy TSLA stock to match its weighting and performance. The same is true when TSLA stock goes lower; all the ETFs need to sell.
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I thought if a stock in an ETF was going up it would be sold not bought for balancing. Were I wrong? What is the reason for it? I googled beforehand but found no viable answer to it.
 
The article is somewhat mistaken. If Tesla goes higher or lower, the value of the Tesla stock already in the ETF also goes higher or lower. The only way that the ETF would have to buy or sell Telsa is if more shares of the ETF itself are bought or sold (as Robert Morse alluded to with creation/redemption), or if it's an Equal Weighted ETF eventually the weighting of Telsa would have to be rebalanced.
 
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