SpaceX's stock has experienced a sharp sell-off following its listing, prompting Wall Street to rapidly launch a range of complex investment products tied to the company's shares, designed to help buyers mitigate future downside risks.
Regulatory filings show that at least five financial institutions, including Morgan Stanley and Marex Group, plan to issue structured notes linked to SpaceX. These products can lock in a maximum loss limit, with some offering a hedge against up to 50% of the stock's decline, though returns over the coming months to years are capped. Since SpaceX completed its initial public offering in June, Wall Street has built a complete investment ecosystem around Elon Musk's conglomerate, which encompasses rocket, satellite, and artificial intelligence businesses, including options and leveraged exchange-traded funds.
Alan Brachman, managing director at Stewart Partners' Washington Wealth Group, stated that the stock is trading with frenzy and experiencing violent price swings, having fallen more than 40% from its post-listing high. He believes it is highly likely that more financial institutions will follow suit in issuing similar products. "The more liquid the options market for a new stock, the more confidence other banks have in pricing the associated risks," he said. "The more volatile the asset and the higher the public attention, the easier it is for the market to issue tailored structured notes."
These products are another example of Wall Street leveraging popular stocks to launch new instruments, with most carrying hefty fees. Structured notes blend fixed-income characteristics with derivative features, classifying them as debt-like securities that offer returns higher than ordinary bonds. High-net-worth individuals, family offices, and self-managed fund managers are the primary investors, seeking to use these products to customize risk-return profiles for their portfolios.
Sarah LaConte, head of U.S. structured product sales at Marex, noted: "This is one of the fastest cases of structured products being brought to market for a new stock. In the structured notes market, investors generally favor single stock underlyings, volatility trading, and AI-related investments." Marex has launched a 9-month autocallable note: if SpaceX's closing price on the observation date is not lower than the initial issue price, the principal is fully returned; during the note's term, regardless of stock price movements, investors are guaranteed a minimum monthly interest of 1.8%. At maturity, the first 35% of any stock price decline is protected; if the decline exceeds 35%, investors bear all additional losses.
Morgan Stanley's product rules are as follows: if SpaceX's stock price is flat or rises by early 2028, investors receive a fixed 40% return; if the stock price falls less than 50%, they still receive the 40% return; once the decline surpasses the 50% threshold, investors absorb all of the downturn losses.
Other institutions planning to issue structured notes linked to SpaceX include Citigroup, Wells Fargo, and RBC Capital Markets. Earlier, Granite Asset Management filed to launch an autocallable ETF linked to SpaceX.
Brachman of Stewart Partners is not a proponent of single-stock-linked structured notes, calling them "a complete imbalance of risk and reward." "These products set a return cap on a highly volatile stock, but once the protection level is breached, losses have no floor," he said. "In this scenario, buying the stock directly is actually a better deal for investors."
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