SpaceX will debut under the ticker ‘SPCX’ this Friday, and its options will begin trading on Tuesday, June 16.
It’s a quick turnaround that leaves investors reeling. They will have little time and a small sample of work to judge how the world’s largest IPO will trade on a day-to-day basis over the long term, which one trader said will present the biggest hedging challenge in nearly three decades.
“As an options trader, we used to do a lot of this type of hedging around IPOs back in 2000. Back then, however, there was a whole basket of technical stocks that you could use to create a hedge fax. There were correlations, proxies, and liquid names to at least give you a framework for risk management,” said Millbank Darttmoor Detmonnisor”
Of course, there are no real comparisons for SpaceX, which will be the only publicly traded private company in the space launch business when it begins trading on Nasdaq this Friday.
As Davitt puts it: “What are you going to do, short NASA?”
The need for hedging is especially important for the investors — often institutional — who own SpaceX equity through the private markets. The company’s private equity market value has nearly tripled in the past year, according to Forge data. When that happens, the relative risk increases because the position becomes a larger part of one’s overall portfolio.
Don’t expect a huge spike
This is where the lack of direct comparisons to SpaceX in the current market makes things difficult, and although Davitt has experienced similar blockbuster IPOs up close, he admits this is a unique challenge.
“This reminds me a lot, as I used to work at Credit Suisse in 2004 when we IPOed Google,” Davitt said. “Hedging it back then was easy because there were so many things you could sell. So when you put a hedge on something like this, you create a basket of things that mimic the price action… but nothing to sell to SpaceX.”
In the absence of directly effective proxies or artificial hedges, the challenge is expected management.
“My sense, being old, and being in the middle of these big IPOs like this, is that it’s rarely a 200% top-off,” Davitt said. “I can’t believe Elon Musk is going to let this IPO at $135 and trade up to $270 on the first day.”
But even if the price action has been muted, there are other pitfalls associated with other commercial vehicles holding SpaceX’s equity.
“I think the initial SPCX markets will be the biggest challenge for traders meaning they are very broad and have very high IV,” Spotgamma Founder Brent Kochuba told me via email.
“It’s not just the stock price action that’s being considered, but you have these concentrated ETFs that are going to launch, and then they’re going to be forced to buy the index. Including that is the FOMC meeting and the VIX expiration the next day (17th), followed by the June major options expiration.”
