SpaceX and Tesla have erased a cumulative $1.5 trillion in market cap since mid-June. SpaceX reports earnings on Tuesday and its insider lockup ends two days later, with options pricing a 15% swing in the stock. Traders have kept buying more calls than puts through the decline.
SpaceX and Tesla have erased a cumulative $1.5 trillion in market cap since mid-June, after an almost 50% sell-off in SpaceX since its high and an 18% drop in Tesla since earnings last week. Next week hands Elon Musk two more tests: SpaceX’s first earnings report, due Tuesday, and the end of the lockup period for SpaceX insiders two days after.
Options imply a 15% move after SpaceX earnings
Options prices are implying a 15% swing in SpaceX after earnings, with implied volatility of 122 in the stock. That reading sits higher than every S&P 500 company other than SanDisk, which dropped 16% on Tuesday.
Earnings also trigger the company’s unique lock-up period, which allows insiders to begin selling shares earlier than the typical 180-day period. That puts more than 900 million shares, or 20% of their eligible locked-up stock, on the table for trading.
The early lockup undercuts the usual volatility drop
Options traders can usually count on implied volatility falling after earnings, because earnings present predictable risk that stockholders often have to hedge, and once that risk passes — even if the stock crashes — volatility usually declines. But traders must now ask which presents more risk to SpaceX, its first earnings or the lockup period.
If the lockup leads insiders to sell stock, volatility could either stay elevated or go up after earnings. The implied volatility of SpaceX contracts expiring Aug. 7 is 160, according to thinkorswim data, compared with 55 for Tesla, which currently trades with an implied vol of 52.
Call buyers still outnumber put buyers
SpaceX traders have largely retained their optimism throughout the decline. More calls trade on a daily basis than puts. Traders bought almost 100,000 calls on Tuesday, compared with just 46,000 puts.
That said, the divide between small and big traders is growing, with the bigger group erring more on the side of caution. The most popular contract by volume Tuesday was the 330-strike calls expiring next Friday, which drew $770,000-worth across 21,000 trades, according to SpotGamma. Sorted by size of trader, the picture is still bullish but much less aggressive: the 130-strike call expiring in November traded just 5,400 times, for $8.7 million of premium.
Source: CNBC
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