SpaceX shares extended their wildly volatile streak on Tuesday, falling below their first-day opening price before rebounding in a day of overall weakness for the technology sector - putting Wall Street in greater focus on the changing balance of power between buyers and sellers in the volatile stock.
Since trading began on June 12, the stock price of Musk's rocket and artificial intelligence company once soared 67% before falling 35% from its high. But analysts said the fluctuations may not represent a fundamental shift in how investors view SpaceX's prospects and valuation, given the deluge of information leading up to the record $75 billion IPO and the silence that followed.
This situation will change in the coming days. Analysts said that SpaceX's inclusion in major stock indexes and major investment banks starting to publish research reports may stimulate more buying; while the lifting of restricted stocks may trigger potential selling.
Trading styles in the options market have turned defensive, with more investors betting that SpaceX shares could fall after an initial frenzy of buying. Typically, automated sell orders will cluster around specific milestone prices, with some investors viewing the June 12 opening price of $150 and the IPO price of $135 as potential pressure points.
The stock had another mixed day Tuesday. Against the background of the overall sell-off on Nasdaq, the stock price fell as low as $147.11 in early trading, but rose 5% to $162.80 in late trading.
"If these levels hold, this will be optimistically viewed as a 'test'; but if they fail, it could signal a shift in sentiment towards stronger sectors of the market," Bespoke Investment Group said in a note on Tuesday.
The sell-off in SpaceX in recent days has been accompanied by the biggest correction in technology stocks in weeks. Nvidia's market value fell below $5 trillion on Tuesday and hundreds of billions of dollars were wiped off the Nasdaq Composite Index.
A moment of truth for SpaceX
A series of SpaceX-related events will drive market trading in the coming days and weeks. Investors say some of these developments could be market-boosting, such as being included in indexes, but given the multitude of factors that influence the pricing of securities — especially in a hot market like artificial intelligence-related stocks — it’s impossible to predict how these events will affect trading.
SpaceX is expected to be included in the Russell index as part of FTSE Russell's regular index restructuring on Friday. This could bring $2.68 billion in inflows from passive investors.
June 29: SpaceX’s Starship is scheduled to conduct its 13th flight.
July 6: Expected to be included in the Nasdaq 100 Index.
July 7: A quiet period that restricted investment banks involved in IPOs from publishing research reports ends.
SpaceX will be included in ETFs linked to the Nasdaq and Russell indexes, such as the Invesco QQQ Trust (QQQ.O) and the iShares Russell 1000 ETF (IWB.P).
Todd Rosenbluth, director of research and editorial at ETF market analysis firm TMX VettaFi, said the market had expected the ETFs to include the stock. "However, on the day of inclusion, these ETFs will still act as buyers and provide some demand for the stock," he said, because unlike active managers or retail investors, index funds cannot trade far in advance.
Options betting presents a two-way pattern
After investors initially rushed to position SpaceX with call option bets, the market has turned two-way trading as some traders expect the stock to fall below its IPO price in the coming months.
"Options trading activity has leveled off. It's no longer the full frenzy it was on the first day," said Steve Sosnick, chief strategist at Interactive Brokers.
Options data shows traders see a roughly 40% chance the stock will fall below $130 by mid-September, according to Susquehanna Financial Group strategist Christopher Jacobson.
While the overall trend in SpaceX options remains slightly bullish, there are nearly two puts open for every open call option on contracts expiring in July through September with strikes between $125 and $190, according to LSEG data, suggesting the market is taking defensive positions. A call option gives the right to buy a stock at a fixed price in the future, while a put option gives the right to sell a stock.
“Given the performance of hot IPOs in the short term post-issuance and the need to hedge around the lockdown period, I don’t think this is unusual,” said Ophir Gottlieb, CEO of Capital Market Laboratories. He has been investing in SpaceX since a 2022 funding round.
While most newly listed companies impose broad restrictions on insider share sales within about six months of listing, SpaceX has set exceptions for some participants (link) and plans to unlock restricted shares in phases, with the unlocking partly determined by company performance and stock price targets. As long as certain conditions are met, some shareholders can begin selling shares shortly after SpaceX announces its first quarterly earnings report.
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