SpaceX shares are doing something very unusual. Options traders are taking note
After debuting as the most volatile stock among its large-cap peers, Elon Musk's astronomic equity hasn't moved in three weeks.
Kass
After an explosive debut and equally impressive crash, SpaceX shares are now, well, hovering in midair.
After debuting as the most volatile stock among its large-cap peers, Elon Musk's astronomic equity hasn't moved in three weeks, with shares trading in a $10 range around the $140 level. Implied volatility, a rough measure of the costs of options, in SpaceX is now 57, down from over 120 before to its earnings report, ThinkOrSwim data shows. On its debut, it would have been the most volatile stock in the S&P 500. Today, it wouldn't crack the top 25.
Bulls will argue the calm enveloping SpaceX is a testament to the conviction of insiders and early investors who held onto shares the past month despite the end of the company's first equity lockup period. Investors should also not underestimate the smoothing effect of SpaceX's inclusion into major indexes like the Nasdaq 100 and Russell 1000.
"If you're a wild man raised by wolves in the forest you're going to have a different vol than the guy who lives in the city who's going to have an average personality of the city he lives in," said Noel Smith, founder and chief investment officer of Convex Asset Management, who correctly predicted in June that SpaceX vol would collapse. "SpaceX now lives in the city."
SPCX 1-month chart
Weekly options contracts in SpaceX expiring Sept. 25 are pricing a roughly $16 move, or about an 11% implied swing. By contrast, bigger moves are currently expected for Intel, Robinhood Markets, Corning and Dell Technologies, to name a few.
Currently there are more open put contracts than calls in SpaceX, according to open interest data tracked by Barchart. The put/call open interest ratio is 1.1, down from an all-time high of 1.2 on Monday as trading volume this week leans toward calls.
Among the roughly 500,000 options contracts traded in SpaceX on Thursday, 335,000 were calls, with 168,000 of those calls likely bought, SpotGamma data shows, compared with just 75,000 puts purchased.
The top seven contracts by volume were all calls and the most popular was the 144-strike expiring tomorrow – a trade that needs the stock to rally another 3.5% this week.
Investors might want to wait before piling into puts or call. While the implied volatility has fallen, its still greater than the stock realized vol, meaning flat out purchases of options might seem deceptively inexpensive.
"Just because it's the cheapest it's ever been relative to itself doesn't mean much," Convex's Smith added. "I'd say the vol feels pretty fair-ish here, but if you really pressed me on what I'd do at vol 54 or 55, I'd still say sell it."
