SPCX: Plenty of tailwinds (for now)

Can anything stop SpaceX? Day three of trading and shares of SpaceX continued to defy the iron laws of gravity and valuations. During a broad selloff in tech, particularly for semis and software infrastructure shares of SpaceX ended +5% higher after ~20% gains on each of the previous days’ trading. They’d traded up as much as 17% at one point and the company is now bigger than Amazon. The selling in the afternoon looked like the buyers had run out for the day and profits were taken. In pre-mkt trading early Wednesday shares were up 3% to almost $210 from the IPO price of $135.

Right now, as I noted in this morning’s note, there are a lot of forced buyers. Soon enough there will be a lot of willing sellers. We are in the price discovery phase, but it’s unevenly distributed. 

SpaceX will be included in FTSE Russell, MSCI and Nasdaq indices in the coming days. Fast-tracking the stock into indices has created a universe of passive and index funds that must buy the stock at any price. There are also newly-launched leveraged ETFs that seek to capture daily moves in SPCX stock. GraniteShares and ProShares have both already launched x2 ETFs.

Thematic ETFs have also moved quickly into SpaceX. The ARK Space & Defense Innovation ETF for instance already has a 9.7% weighting in SPCX.

Options trading started Tuesday, which may be another help for the stock. Calls were far more popular than puts. When stocks rise call sellers are exposed to more risk and need to buy into the cash market to hedge. This means the feedback loop is positive.

As Koen explains here, on day one of options trading there was heavy buying of OTM calls with short expiries.

Everyone, from index funds and ETFs to call hedgers, are swimming in a small pool of shares with a relatively tiny free float. More shares are on the way, but not yet. None of the new shares released from lockups come onto the market before SPCX enters the Nasdaq 100.

Investors who have owned the stock before IPO will be able to sell up to 20% of their holding from the second full day of trading after the company releases its earnings report after the end of the second quarter. There is an option to sell an additional 10% if the stock trades 30% above its IPO price for five of the 10 trading days after this earnings report is released. And they can sell 7% increments after 70, 90, 105, 120, and 135 days from the IPO day. And there is more – a further 28% could be sold after its third-quarter earnings. The rest unlocks at 180 days after the IPO, but Elon Musk is tied in for 366 days, and he says several “significant” investors have also agreed to a one-year lockup.  

When lockup periods expire, we move from a forced-buyer dynamic to a willing-seller dynamic. Nothing can defy the laws of gravity forever, but for now there seem to be considerable mechanical tailwinds. 
So far we have 6 analyst ratings on SPCX - 4 Buy, 1 Underweight and 1 Sell.