SpaceX shares face volatile trading catalysts after record U.S. IPO

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SpaceX IPO trading catalysts

Highlights

SpaceX options trading begins Tuesday, with expectations of high volumes, sharp price swings and volatility exceeding average U.S. stock levels.
Staged end to resale restrictions and broker-imposed holding periods could spread selling pressure and volatility across the six-month post-IPO period.
SpaceX will be added to the Nasdaq 100 and MSCI/Russell large-cap benchmarks this month, likely prompting index fund buying and expanding passive investor exposure.

Key post-IPO events in coming weeks

As reported by Reuters, several near-term market events are set to shape trading in SpaceX after Friday's blockbuster listing, including the start of options trading, the gradual end of resale restrictions and the use of the IPO's greenshoe option.

Options on SpaceX are set to begin trading as soon as Tuesday, with investors expecting heavy volumes, sharp price swings and elevated costs. Market participants say that if the stock behaves like Tesla, another Elon Musk-linked company, it could trade at volatility levels far above the average U.S. stock.

SpaceX also plans to let a large portion of its shares become eligible for resale before the usual six-month post-IPO lockup ends, using a staged system tied to company performance, according to a filing. The structure is intended to avoid a single wave of stock hitting the market, but it may extend volatility across the full six-month period instead of concentrating it on one day.

Some brokers are separately imposing their own holding periods on IPO allocations. Jake Dollarhide, chief executive officer of Longbow Asset Management, says shares his firm received for clients on Friday carry a 31-day minimum holding period, raising the prospect of selling pressure once those limits expire.

The IPO also includes a greenshoe option that gives Morgan Stanley the right to buy an additional 15% of the offering at the IPO price of $135 a share for up to 30 days. That amounts to about 83 million shares on top of the 555.6 million shares already sold, a mechanism commonly used to help stabilize trading after large listings.

Valuation debate and index impact

Investor enthusiasm around the offering is colliding with questions over whether SpaceX's fundamentals support its market value. The company posted a $4.94 billion loss last year on $18.7 billion of revenue, figures that are likely to come back into focus when its next earnings report arrives in the next few months.

Todd Schoenberger, chief investment officer at Crosscheck Management, says many market participants appear to be trading the stock rather than making long-term investment decisions. Dollarhide also argues that SpaceX's valuation is closely tied to Musk's reputation, reinforcing expectations that the coming earnings release could become a major test for the shares.

Another important catalyst arrives this month when SpaceX is added to indexes including the Nasdaq 100 and some MSCI and Russell large-cap benchmarks. Those inclusions are expected to force buying by index-linked funds and could lift the share price, while also increasing SpaceX's presence in retirement and passive investment portfolios across the U.S.

That dynamic is also fueling concern about whether passive investors are taking on valuation risk without an active choice. Kevin Moss, co-creator of the Private Shares Fund, says many investors will end up owning SpaceX through index funds or retirement plans even if they have no specific view on the stock's price.

Our earlier coverage of SpaceX’s first-day IPO surge focused on why early price action may not reflect settled fair value. We noted that heavy index-linked inflows can create “forced buying” and delay price discovery, while a large pipeline of insider shares becoming eligible for resale after earnings could reshape supply and volatility.

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