SpaceX stock had its first down day ever on Wednesday, after rising for a third consecutive day the previous session, but don’t be surprised if it starts gaining again.
SpaceX stock traded as high as $213.80, but closed at $191.82, down 5%, while the S&P 500 and Dow Jones Industrial Average fell 1.2% and 1%, respectively.
The decline comes after shares of SpaceX gained 4.8% on Tuesday, closing above $200 for the first time. Coming into Wednesday trading, shares were up almost 50% from their $135 IPO price, valuing the company north of $2.6 trillion. It’s been a remarkable run.
Tuesday trading was helped by the debut of stock options. SpaceX options were among the most actively traded, which is a little surprising, given that only about 640 million shares are available for trading.
Normalizing for the stock available to trade, SpaceX options were four times as active as Tesla options and 25 times more active than Nvidia options. Call options, which give the holder the right to buy stock at a fixed price in the future, were more popular than puts. (SpaceX’s most active option was the $220 call that expires in June, according to Bloomberg.)
Heavy call buying can put upward pressure on stock prices. A SpaceX call seller has risk if the stock rises. To hedge that risk, they can buy some stock. A feedback loop can be created where rising prices necessitate more buying to hedge options positions.
That’s one tailwind for SpaceX stock. Another is the flow of funds into exchange-traded funds seeking SpaceX exposure. Direxion just launched the SpaceX Bull 2x ETF, designed to give investors twice the return of SpaceX stock in regular trading. On Wednesday, the Procure Space ETF, which trades under the symbol “UFO,” announced it had added SpaceX shares.
All the ETFs and call hedgers are chasing a limited amount of shares. More shares are coming, but not yet.
Traditional IPOs include a provision preventing insiders and early investors from selling stock for 180 days. SpaceX isn’t doing that. It is staggering its lockup.
After the first quarterly earnings report, 20% of the stock will come off lockup; it could be 30% if SpaceX stock is consistently above $175. Then 7% of the stock comes off lockup at 70 days, 90 days, 105 days, and 135 days after the IPO. That takes investors into mid-October. Another 28% of the stock comes off lockup after the second-quarter report. The final amount is unlocked after 180 days.
None of the lockups occur before SpaceX enters the Nasdaq-100 later this month. That’s more passive buying to push up shares.
“With lockups until August, no practical way to short [the stock], and puts just starting [Tuesday], the stock has been artificially elevated,” says Future Fund Active ETF cofounder Gary Black.
At least, the amount of SpaceX in the Nasdaq-100 is adjusted for the float to minimize volatility. Initial buying might amount to $7 billion to $10 billion.
No stock can go up in a straight line, and trading research firm AgentSmyth noted in a Wednesday report put option activity in September contracts. That is one sign that traders see weakness when more stock supply comes online. “This is where [trading] whales stop financing [SpaceX] upside and start funding [stock] absorption,” the firm said.
Bottom line, there are several tailwinds for SpaceX stock through Nasdaq indexation. Shares might not cool off until the earnings report, when 20% to 30% more shares are available to trade.
Exactly how shares will trade is impossible to say. And in the long run, it will be earnings and earnings growth that determines SpaceX stock value. For now, investors expect big earnings and earnings growth.
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