Options tied to SpaceX shares priced investors for both a strong rise and a steep fall simultaneously on the first trading day. While the company's stock continued to climb after Friday's IPO, the gap between market excitement and valuation concerns became more apparent.
According to Susquehanna's assessment, the market assigned about a 15% chance that the stock would increase by 50% within the next three months, and a similar probability that it would lose half its value. The firm reported that SpaceX had the fifth highest call option volume of the day.
Supply Risk and Valuation Pressure Take Center Stage
Susquehanna strategist Chris Murphy wrote that the largest trades increasingly appeared to be hedges against future supply risk. According to Murphy, the upward call options reflected expectations of a new sharp rally, while the downward put options indicated concerns about supply after lock-up expiration, valuation risk, and the possibility of post-IPO enthusiasm fading.
Murphy noted that the emerging picture created a challenging trading environment, stating that these options neither seemed cheap to buy nor safe to sell.
SpaceX shares continued to rise after the IPO, surpassing the offering price by about 50%. This increase pushed the company's market value past Amazon's and brought it close to Microsoft's valuation.
Investors Price in the Story and Expectations
Peter Boockvar, Chief Investment Officer at One Point BFG Wealth Partners, said investors are currently pricing in the company's business story, momentum, excitement, and the interest surrounding Elon Musk. However, Boockvar emphasized that at some point, expectations need to align with fundamental indicators.
Boockvar added that if SpaceX justifies its valuation, there is room for further gains, but the current level is very high and the company will have to grow into this value. He also noted that this process could take several years.
First-day trading data in the markets provided a strong test not only of SpaceX's performance but also of investors' risk appetite. Option pricing clearly revealed how intensely the short-term direction was being debated.
