space x The bulls, like Tesla’s traders before them, are proving to be devout people.
Nearly a month into trading, and one day before the company’s accelerated listing on the Nasdaq 100, an index that underpins about $500 billion in stock prices, daily options flow remains significantly bullish. Invesco QQQ Fundof which Elon Musk’s new giant gains a weight of approximately 1%.
By midday Monday, SpaceX options had traded about 500,000 shares, slightly below the average since its inception but still good enough to be the fifth most popular stock in options trading. According to ThinkOrSwim data, there were over 300,000 call trades and less than 130,000 put trades, with the number of buy calls and puts almost five times higher. Tesla, another of Mr. Musk’s trillion-dollar companies, has always been one of the most active stocks for options traders.
Nasdaq’s inclusion of SpaceX would theoretically increase the tech index’s overnight volatility slightly given SpaceX’s volatility, but the impact would be minimal because Nasdaq rules limit the weighting of low-float stocks. How SpaceX releases its stock in line with its lockup schedule, how passive index buyers handle its inclusion, and overall demand for options will determine whether SpaceX remains as wild as when it hit the market.
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SpaceX’s implied volatility is trading at 92, which is almost 3.5 times higher than QQQ, and QQQ itself is currently the most volatile compared to the S&P 500 in almost 20 years. That likely means SpaceX will be less volatile in the long run as long-term investors buy and hold the index fund and its components.
The counterargument is that these index holders may use SpaceX options to hedge their inclusions, which would continue to drive demand for puts higher. SpaceX’s volatility also makes call sales attractive as a source of income, which should increase options trading volume. Add in the fact that high volatility is a key characteristic of many of the bull market’s biggest winners, and that demand remains strong despite high premiums, and there is a case to be made that SpaceX’s volatility could persist even if the stock price continues to rise.
The stock rebounded on Thursday, fell below $160 on Monday, and was down 8% last Wednesday.
The top 10 trading options on Monday were all calls. The most popular was a 450-strike call expiring on July 17th, a 15-cent trading contract that would need to rise 180% by the end of next week to break even. Major traders supported the 180 strike call, which is set to expire on Friday.
