SpaceX Options Market Braces for $225 Billion Value Swing Amid Earnings
Market Reactions and Investor Sentiment Surrounding SpaceX Earnings
NEW YORK, Aug 4 (Reuters) - Traders in the options market are braced for a swing of roughly $225 billion in the value of SpaceX shares following its first-ever earnings report on Tuesday, underscoring market anxiety over how the financials will look for Elon Musk's rocket and satellite company.
Options Market Pricing and Volatility
Options are pricing a roughly 15% move in SpaceX shares in either direction, but with a bearish tilt, according to data from options analytics service ORATS.
The company's shares have fallen 43% from a closing peak of $201.80 set not long after its record-breaking June 12 debut. Even after the slide, SpaceX still has a $1.5 trillion market capitalization.
The stock's slump, its limited trading history, and uncertainty over whether its maiden earnings will show its revenue can support its valuation, have driven pricing on its options well beyond what is typical for large mature companies, said analysts. Investor nervousness is evident in high short interest and flows into bearish leveraged funds as well.
By contrast, options traders had priced in a 6.6% move in Microsoft's shares ahead of its earnings last week.
Expected Earnings and Analyst Commentary
SpaceX is expected to post a quarterly loss before interest and taxes of $1.55 billion on revenue of nearly $7 billion.
"The overall volatility level is massive," said Ophir Gottlieb, CEO of Capital Market Laboratories, a financial research and trading technology firm.
Potential Share Sale and Further Stock Pressure
SpaceX's earnings will clear the way for the potential sale of some 911.5 million shares owned by insiders, employees and early investors that had been locked up until August 6. That could further pressure the stock.
"The weight of the evidence is the options market is sort of leaning short the stock," said Brent Kochuba, founder of options analytics service SpotGamma.
The stock surged to an all-time intraday high of $225.64 a few days after its debut, but has since fallen to $114.53.
Leveraged ETFs and Retail Investor Activity
Flows into some SpaceX leveraged exchange-traded fund products — which offer amplified exposure to the daily performance of stocks — also suggest retail bulls are cautious.
Total assets in all seven leveraged long single-stock SpaceX ETFs now stand at $401.1 million as many investors bet its shares will rise.
However, investors betting on shares dropping are also in the game, with $296.8 million having flowed into the 2x inverse/short funds, according to data from VettaFi. That gap between bears and bulls is far narrower than is typical for stocks with leveraged ETFs.
Short Sellers and Hedging Challenges
Short Sellers Circle
Short sellers, who bet against shares by borrowing and then selling them into the market, smell blood. Short interest remains near a record high, with roughly 63% of SpaceX's free float on loan, according to Peter Hillerberg, co-founder of data and analytics company Ortex Technologies. There is almost no stock left to borrow, he said.
Hedging Difficulties Due to High Volatility
Some SpaceX investors have had difficulty hedging, as the heightened expectation for volatility has made options more expensive.
"We were going to set up a synthetic hedge for our investors to hedge their SpaceX exposure, but the cost was so high that no one was interested," said Clint Sorenson, CEO and chief investment officer of Ascentis Asset Management.
Short Seller Profits and Crowded Trades
Shorts are sitting on an estimated $18.4 billion of mark-to-market gains based on SpaceX's July 31 closing price of $108.37, Hillerberg estimates.
Mark Spiegel, managing member and portfolio manager at Stanphyl Capital Partners, warned that the bearish positioning was crowded.
"In recent weeks, the SpaceX short interest increased so substantially that I think much (if not all) of this Thursday's 'initial' unlock was priced in by today's low," Spiegel said in an emailed note.
Speculation on a Rebound
Indeed, some options traders appeared to be girding for a rebound in the shares, with contracts struck above the current share price also showing healthy demand, which traders suggested could represent ongoing faith in Musk's success.
"Clearly there are plenty of traders willing to speculate on a return to the $135 IPO price, if not well beyond that," said Steve Sosnick, chief strategist at Interactive Brokers.
(Reporting by Saqib Iqbal Ahmed and Suzanne McGee; Editing by Michelle Price and David Gaffen)
