Today is the big day. If you want clues for what might happen, look to the proxy trades that have been the rage among options traders.
Options volumes are booming in stocks with ties to SpaceX ahead of Friday’s historic debut of the newest public entity run by the world’s richest man. While Wall Street debates whether the $1.75 trillion IPO is an egregiously overpriced hype-machine or the future of mankind, traders are piling into calls on anything that might catch a bid by association.
Follow CNBC’s live updates on the SpaceX (SPCX) IPO
Shares of EchoStar, the Colorado-based networking business that owns an estimated 3% of SpaceX stock, surged 11% Thursday and options volume was more than eleven times the 30-day average in ‘SATS’, according to data from Cboe’s LiveVol. AST Spacemobile, whose satellites are expected to launch on a SpaceX rocket next week, jumped 12% alongside almost $140 million in options trading.
Even Virgin Galactic Holdings, a stock that lost 99% from high to low, saw options trading ignite, with almost 3.5 times more calls bought than puts.
“There’s a ton of short-dated call buying in these names as a way to get long SpaceX,” Danny Kirsch, head of options trading at Piper Sandler, said by phone. “I have no doubt part of it is retail demand but there is definitely institutional demand for SATS.”
EchoStar shares were higher by another 5% in early trading Friday. AST SpaceMobile was also trading higher.
Concurrent demand for exchange-traded-funds that target the space category is also creating a bottleneck of supply that’s helping keep prices for the proxy plays elevated, according to Cory Johnson, chief market strategist of San Francisco-based Epistrophy Capital Research.
ETFs like Procure’s ‘UFO’ and Defiance’s ‘JEDI’, up 119% and 35% the past year, respectively, both own shares of ASTS.
“People who can’t buy SpaceX or didn’t think they could get enough quick enough, have been plowing money into these ETFs and so these funds are having to buy shares of AST, EchoStar, Spire, etc,” Johnson said in a phone call. “It has nothing to do with the quality of these companies, demand for their products, or their cash flows.”
One thing seems clear: demand for SpaceX options that will begin trading on Tuesday is likely to be nothing short of astronomic. The IPO is set to price at $135 a share, a sweet-spot for retail traders who don’t mind paying expensive premiums on nominally low-priced stocks.
EchoStar and AST, which closed at $128 and $97.56 on Thursday, trade with implied volatilities of 97 and 129, respectively.
“SpaceX has the potential to become one of the most actively traded options names among retail investors,” Anthony Denier, Group President and US CEO of Webull, said in an email. “The combination of a likely high share price, significant volatility, and immense public interest creates an ideal environment for options trading. If borrowable shares become scarce or expensive, put options may offer investors a more practical way to express a bearish view than shorting the stock directly.”
Tesla, the original Musk cult stock, is one of the most actively traded names among retail options traders.
