With the Nasdaq 100 repeatedly setting fresh record highs, SpaceX (SPCX) has once again become the market's focal point.
The stock surged 8% on Monday to $171. The rocket maker's shares have rebounded nearly 50% from their lows and returned to their IPO price, pushing CEO Elon Musk's net worth back above the trillion-dollar mark.
The rally did not stop there, with shares gaining another 2% in early trading on Tuesday. Morgan Stanley analyst Adam Jonas reiterated his $300 price target on Monday; last Thursday, SpaceX's Falcon 9 rocket set a record by delivering four astronauts to the International Space Station in under eight hours.
Alongside strengthening price momentum, SpaceX options volume on Monday reached twice the 30-day average, with 1.7 million contracts traded worth a total of $900 million; of those, 1 million were calls valued at more than $640 million. Market sentiment recalls the frenzy around SpaceX's listing in June, but this time there is one key difference: after seven weeks of oscillating within a 10% price range, SpaceX's implied volatility has fallen significantly. That means that unless the stock can sustain the pace of the past two days, traders hoping to wait for a new all-time high should brace for a prolonged battle. After its June listing, SpaceX needed less than three full trading days to surge from $171 to an intraday high above $225. At that time, its implied volatility exceeded 110. Now the measure sits at 55, up from a record low below 50 last Thursday. Based on options pricing at Monday's close, market makers estimate that the probability of SpaceX shares touching $225 between now and next July is less than 50%. Looking at shorter-dated contracts, the probability of the stock reaching $185 by the end of this month is 54%. Data from Barchart also shows that market makers are assigning implied volatility to puts that is equal to or even higher than that of calls, signaling that the likelihood of a sharp downward move is comparable to that of a sharp upward surge.
For indices like the S&P 500, put premiums are typically higher than call premiums, but the direction of volatility skew for individual stocks is not fixed. In comparison with Nvidia, calls are more expensive across most expirations, indicating that investors are more worried about missing out on a rally than about hedging against a decline. Even so, Monday's SpaceX options flows leaned clearly optimistic. Data from Cboe LiveVol shows that traders most likely bought 456,000 calls while purchasing fewer than 240,000 puts; at the same time, they sold 250,000 puts and 295,000 calls. Charles Moon, a technical and momentum trader at the Chicago-based Prosper Trading Academy, said: "The Starship program is providing a boost, but Wall Street seems to be piling in starting in the fourth quarter. SpaceX and Tesla are driving each other, and the two have become increasingly synchronized in their recent moves." ThinkOrSwim data shows that the 30-day correlation between SpaceX and Tesla is currently 0.66. Morgan Stanley's Jonas wrote in a research note to clients on Sunday: "After stripping out the growth factor, for those looking to position for the enormous latent opportunity in the space and intelligence economy, SpaceX is one of the relatively cheaply valued vehicles."
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