SpaceX bulls are proving a devout lot, not unlike the Tesla traders that came before them.
Daily options flows still lean heavily bullish almost a month into trading and one day ahead of the stock’s accelerated inclusion into the Nasdaq 100, the index behind the roughly $500-billion Invesco QQQ fund, of which Elon Musk’s new giant will garner a roughly 1% weighting.
About half-a-million SpaceX options traded by midday Monday, a little below the average since inception, but still enough to be the fifth-most popular stock for options trading. More than 300,000 calls traded, compared to less than 130,000 puts, with almost five times as many calls bought versus puts, according to ThinkOrSwim data. Tesla, Musk’s other trillion-dollar company, is consistently among the most active stocks for options traders.
Nasdaq’s inclusion of SpaceX will in theory make the tech-heavy index marginally more volatile overnight given SpaceX’s wild swings, but the Nasdaq’s rules limit the weight of low float stocks, so the impact will likely be minimal. How SpaceX releases shares around its lockup timeline, how passive index buyers handle its inclusion, and overall demand for options, will determine if SpaceX stays as wild as it did when it came out to market.
SpaceX
SpaceX trades with an implied volatility of 92, almost 3.5 times that of QQQ, which itself is currently the most volatile in comparison to the S&P 500 in almost 20 years. Arguably that would mean over the long term, SpaceX volatility should come down, as long-term-minded investors buy and hold index funds and their constituents.
The counterpoint is that those index-holders may use SpaceX options to hedge its inclusion, which would keep demand elevated for puts. SpaceX’s volatility also makes call-selling attractive as an income source, which would increase options volume. Add in the fact that high volatility has been a key characteristic of many of the bull market’s biggest winners, keeping calls in strong demand despite expensive premiums, and there’s a case to be made SpaceX volatility could stay – even if the stock keeps rallying.
Shares slipped to below $160 on Monday following a bounce Thursday, but a 8% sell-off last Wednesday.
All of the top 10 options contracts by volume Monday were calls. The most popular was the 450-strike call expiring July 17, a 15-cent trade contract that needs a 180% rally by the end of next week to break even. Bigger traders favored the 180-strike call expiring Friday.
www.cnbc.com