Key facts
- Options on SpaceX are expected to begin trading as soon as Tuesday.
- SpaceX's valuation exceeded $2 trillion after its IPO.
- Early trading in SpaceX options is anticipated to be heavy and volatile.
- Investors will use options for downside protection and to position for volatility.
- Tesla's beta of 1.81 suggests SpaceX could be more volatile than average stocks.
Options on Elon Musk's SpaceX are expected to begin trading as soon as Tuesday, following the company's record-breaking IPO debut where shares surged over 25% to push its valuation above $2 trillion.
Cboe Global Markets anticipates the options will start trading this week, with market participants expecting significant initial volume and a broad mix of investors. These investors may include shareholders seeking protection against potential price drops and traders positioning for anticipated volatility.
Ophir Gottlieb, CEO of Capital Market Laboratories, described the expected demand as "explosive," citing the combination of the largest IPO ever, a controversial founder, and ambitious long-term goals as drivers for potentially record initial option volume.
Options provide a cost-effective way to gain exposure to a stock and express views on short-term price movements or longer-term positioning. SpaceX opened at $150 on Friday, up from its $135 IPO price, and was trading around $172 in the afternoon, making it the sixth-largest U.S. company by market value.
Given Elon Musk's history with Tesla, which has a five-year beta of 1.81, SpaceX is expected to exhibit higher volatility than the average stock, further driving options activity. Seth Hickle, Chief Investment Officer at Mindset Wealth Management, anticipates significant volatility in the underlying stock and "very high" implied volatility in its options.
Activity is expected to increase around key events such as SpaceX's first quarterly earnings report as a public company and potential inclusion in major equity indexes. Nasdaq has already modified its rules to facilitate SpaceX's entry into the Nasdaq 100, while MSCI will apply early inclusion rules for large IPOs. S&P Global, however, has stated it will not fast-track SpaceX's inclusion into the S&P 500.
Chris Murphy, co-head of derivatives strategy at Susquehanna, noted the high level of inquiry regarding the options listing date. Skeptics may also use options to express bearish views, though Luke Lango, chief technology analyst at InvestorPlace, cautioned that shorting could be expensive and risky due to potential short squeezes in a thinly traded float.