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You cannot however sell only SpaceX shares from your ETF to cover your short's losses. So due to liquidity issues I wouldn't recommend your strategy.

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We aren’t talking about penny stocks we are talking about a tech giant. At the scales that any ordinary investor is operating at there will be no liquidity issues with shorting it and if it is in your index fund the short and long positions will directly offset if you size it correctly leading you to have net zero exposure to SpaceX.

What are you talking about? You don't need to touch anything about your ETF. You just have to short a single name on the side.

Also there is no liquidity issue, we're talking SP500 names here, you'll pay GC, which should be around 25bps as the other comment mentions.

They're saying if the stock goes up and you get margin-called on the short, you have to sell index shares, you can't just annihilate the Tesla shares with the anti-Tesla shares and walk away.

That depends if you trade cash or synthetic.

I think most people trade synthetic, just because it's faster and you don't have to wait for settlements, but maybe that is different if you trade onshore (I am a foreign investor).

Anyway if you are synthetic your margin is most likely shared between shorts and long on the same instrument, so no, you wouldn't be called.

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