Figure 1: SpaceX share price and daily options volume, 12 June to 24 July. Source: BMLL.

Three fast-track index inclusions created at least $7.5 billion of estimated passive demand 

SpaceX priced its initial public offering at $135 on 11 June and began trading on Nasdaq the following day. The stock closed its first session at $161.11 and reached $225.64 on 16 June, when listed options began trading.

The stock was then added to three large index families in less than two weeks.

FTSE Russell added SpaceX to the Russell 1000 and related US indexes at the close on 26 June. Jefferies estimated that passive funds tracking Russell indexes needed to buy almost $3 billion of SpaceX shares. $19 billion of the stock traded on 26 June, with almost half of that turnover taking place into the close.

Funds tracking the MSCI, and Nasdaq 100 had to include it in their portfolio on 26 June close and 6 July close respectively.

J.P. Morgan estimated that the inclusion in the Nasdaq 100 would produce $4.3 billion of passive purchases. 

Overall index inclusions generated at least $7.5 billion of passive buying flows according to sources or more than 7% of the company free floating shares from ipo day. 

Funds, delta one desks, reweight specialised hedge fund pods anticipate these flows and hedge the upside risk exposures associated.

SpaceX option started trading on 16 June after a 67% upside move 

SpaceX options traded 1.72 million contracts on their first trading day. At 10:00 Eastern Time, our Vola-fitted volatility surface was steeply backwardated: at-the-money implied volatility was 187.1% for expiries within seven days, compared with 88.5% for expiries beyond 271 days.

At-the-money refers to an option where the strike is close to the current share or forward price. Implied volatility is the amount of expected movement embedded in an option price; it does not say whether that movement will be higher or lower. But the difference in implied volatility for strikes above versus below the spot price describes an asymmetry in the pricing of upside versus downside risk.

The 25-delta skew for options expiring within seven days was positive by 30.1 volatility points. We measure this as the 25-delta risk reversal: call implied volatility minus put implied volatility, at matching 25-delta strikes, the standard market convention. A positive reading means upside calls are priced richer than comparable downside puts. Options started trading pricing very high future short term volatility and a high premium to upside risk.

In the 15 minutes ending at 10:00 on 16 June, 115,915 contracts traded. They represented 3.63 million gross delta-equivalent shares and $29.1 million of gross traded dollar gamma for a 1% move in the stock.

Delta-equivalent shares translate option activity into the approximate number of shares carrying the same immediate price sensitivity. Dollar gamma estimates how much that delta exposure would change following a 1% move in the underlying. Both measures are gross: they describe the amount of risk traded, not whether dealers or customers ended the interval long or short.

The average quoted bid-ask spread across traded options expiring within seven days was 16.2 volatility points. Quoting the spread in volatility points allows options with different strikes, maturities and dollar prices to be compared on the same basis.

3D Snapshot 1: 16 June, 10:00 ET. Show the steeply backwardated term structure. Source: BMLL, Vola Dynamics.

The opening volatility premium dissipated quickly. By 26 June, the SpaceX options term structure had become flat: median at-the-money volatility had fallen to 67.8% for short-dated options versus 67.6% for long-dated options.

6 July: Short dated calls were rich as medium-dated  Puts turned pricier on Nasdaq-inclusion

SpaceX’s addition to the Nasdaq-100 became effective on 7 July. Funds tracking the index therefore had to complete the associate final stock purchase into their portfolio targetting the 6 July close price: $160.42.

At 15:45 on 6 July, at-the-money volatility was 83.6% for options expiring in 31 to 60 days, 78.7% for options expiring in 61 to 120 days and 74.6% for options expiring in 121 to 270 days. It was 69.3% for options expiring beyond 271 days.

Skew was split by tenor: It was positive by 3 volatility points for options expiring within the week, but negative 3.2 points in the 31 to 60 day bucket, 5.6 points in the 61 to 120 day bucket, and 4.6 points in the 121 to 270 day bucket. Comparable puts were trading at higher implied volatility than calls across the medium-dated surface, while short-dated options still showed the opposite pattern.

Why the split? Market commentators often refer to the put/call ratio volume: Put volume outnumbered call volume by roughly 13 to 1 in the 121 to 270 bucket that snapshot, which points to protective put buying in the medium-dated tenors specifically, plausibly unwinding some of the early upside bet, or hedging ahead of uncertain post-inclusion price action, rather than the index purchases themselves demanding calls. 

The average quoted bid-ask spread was 11.4 volatility points in the 31 to 60 day bucket, the widest of the seven tenor buckets at that snapshot.

From 15:30 to 15:45 on 6 July trading volume has eased from our early snapshot to 25,692 contracts, equivalent to 768,664 gross delta-equivalent shares and $8.26 million of gross dollar gamma for a 1% move. Open interest had increased to 2.20 million contracts.

3D Snapshot 2 : 6 July, 15:45 ET. Before the Nasdaq-100 inclusion became effective: negative skew across options expiring between 31 and 270 days, with puts priced above comparable calls. Source: BMLL, Vola Dynamics

From protecting against upside to fretting about earnings and the lock-up expiry 

SpaceX announced on 20 July that it would publish second-quarter results after the close on Tuesday 4 August. Management will hold its first public earnings webcast at 16:30 Eastern Time.

Visible Alpha consensus expects second-quarter revenue of $6.9 billion, led by the connectivity business. Analysts polled expect a 35.9% operating margin from connectivity, which includes Starlink, while the space and artificial intelligence divisions remain loss-making. Earnings-per-share forecasts range from a loss of $1.26 to a profit of $0.33, reflecting wide differences in assumptions about expenditure across the newer businesses.

The results also determine the date of the first large release from the IPO lock-up: The restriction prevented employees and early investors from selling immediately after the listing: Up to 911.5 million shares become eligible for sale on 6 August, the second full trading day after the results. That compares with a current free float of 640 million shares.

At the 24 July closing price of $115.07, the eligible shares had a market value of approximately $104.9 billion, while the existing 640 million-share float was worth about $73.6 billion at the same price. Eligibility does not mean that every holder will sell, but it substantially increases the potential supply of shares.

A further 455.8 million shares could be released if the stock closed at or above $175.50 for five of ten relevant sessions.

At 15:45 on 24 July, at-the-money volatility was 94.3% for options expiring within seven days, but 132.1% for options expiring between eight and 15 days, overlapping the 4 August results and the 6 August lock-up release. The term structure was backwardated from that week on with longer-dated options having lower volatility.

In effect, traders priced a volatility hump on the surface for this specific tenor (the technical term for a group of options with the same amount of time until expiry).

The average bid-ask spread was 11.8 volatility points in the 8 to 15 day bucket, compared with 7.4 points beyond 271 days. Quoted liquidity was therefore worse in absolute terms for the options with the maturities carrying the largest event premium.

In our 15-minute trading snapshot at 15:45 ET on 24 July, 88,837 contracts traded, representing 1.12 million gross delta-equivalent shares and $28.9 million of gross dollar gamma for a 1% move. Very short-dated options represented 78,310 of those contracts and $28 million of the gamma.

3D Snapshot 3:  24 July, 15:45 ET. Shows the volatility hump covering the 4 August earnings release and the 6 August lock-up release. Source: BMLL, Vola Dynamics.

Open interest quadrupled, but liquidity did not improve evenly 

Open interest rose from 790,000 contracts on 17 June to 3.81 million on 24 July as traders accumulated positions. The SpaceX options market also became broader: the median number of valid quotes per expiry increased by about 27% between 16 June and 24 July. Yet bid-ask spreads did not tighten uniformly. For example, on 24 July, the average quoted spread was 13 volatility points for options with event risk expiring in eight to 15 days, and 11.7 points for options expiring within two months, but only 6.6 points for long-dated options expiring beyond 271 days.

SpaceX options’ volatility began with a large premium reflecting both the novelty of the new stock and associated derivatives and the large 15 June squeeze on the second trading day of the stock. Traders also likely priced a large premium on upside protection for index inclusion. As the stock dived back to Earth, both the term structure and skew shifted to depict a more complex trading landscape than simple upside bets into fast-track index inclusion.

Ends

Reading this article on desktop will allow you to pan, zoom, rotate and see the underlying data for all the volatility surfaces in this article.

By leveraging BMLL historical OPRA data and Vola Analytics best-in-class volatility tools in BMLL Data Lab, market participants get a full view of trading conditions and volatility across all tenors and maturities listed, or not, making it easier to analyse and trade the US Options Market.  

Credits 

Ben Bingham, BMLL, provided research using the BMLL Data Lab platform to support this article.

How we did it

The analysis combines BMLL OPRA trades, consolidated National Best Bid and Offer quotes and reference data with BMLL US SIP prices for SpaceX stock. We created snapshots every 15 minutes from 10:00 to 15:45 Eastern Time on each trading day from 16 June to 24 July.

Vola Dynamics fitted the complete listed-options chain jointly as American-style, physically settled options. This is not a simple Black-Scholes calculation applied separately to each contract. The model accounts for early exercise, uses the observed SIP share price and relevant  trading and settlement calendars, and fits a borrow curve across expiries. A discount curve was built from SPX and SPXW options at the same timestamp. No scheduled SpaceX dividend was assumed.

The fit used one of Vola Dynamics’s higher flexibility curve type with its fitting and strike-selection settings configured for SPCX. Same-day expiries were fitted jointly with the rest of the chain. Quotes older than 60 seconds were excluded from the valid market overlay.

The fitted surface was saved for every listed expiry on 321 log-forward-moneyness points and 199 delta points. Log-forward moneyness measures where a strike sits relative to the forward share price. Delta measures how sensitive the option price is to a move in the underlying.

The three figures are static evaluations of the Vola-fitted surface at the stated 15-minute timestamps. They do not use a separate BMLL interpolation or refit the data during rendering. Contract volume, delta-equivalent and dollar-gamma figures cover the 15-minute interval ending at each snapshot; open interest is the daily reported stock.