SpaceX stock rose for a third consecutive day on Tuesday. There doesn't seem to be any reason for it to decline over the next few days, and there are a few reasons to expect shares to maintain their momentum.
Shares of Elon Musk's rocket company 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.
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 occurs before SpaceX enters the Nasdaq-100 later this month. That's more passive buying to push up shares.
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.
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.
SpaceX stock was up 3.26% in premarket trading at $208.58, while S&P 500 and Dow Jones Industrial Average futures were up 0.1% and down 0.1%, respectively.
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