By Laura Matthews and Saqib Iqbal Ahmed
NEW YORK, June 12 (Reuters) - Investors will soon get a new way to bet on SpaceX's trajectory: options on the stock are set to begin trading as soon as Tuesday, with early activity expected to be heavy, volatile, and likely expensive.
Options on Elon Musk's rocket and spacecraft manufacturer will follow its record trading debut on Friday, when shares jumped more than 25%, pushing its valuation above $2 trillion as investors piled in to bet on the sprawling empire,
which spans rockets to AI.
Options exchange Cboe Global Markets expects options to start trading Tuesday, a spokesperson said. Market participants expect a broad mix of investors to likely enter once options begin trading, from shareholders seeking downside protection to traders positioning for volatility in the stock.
"I expect explosive demand," said Ophir Gottlieb, chief executive of Capital Market Laboratories. "The largest IPO ever attached to one of the most controversial founders ever, pursuing what might be one of the most ambitious long-term goals ever, will equally generate some of the largest initial option volume in dollars ever."
Options, which give holders the right but not the obligation to buy or sell shares at a predetermined price within a certain period, offer investors a low-cost way to gain exposure to a company's stock and to express their views on short-term price moves and longer-term positioning.
They usually list within days of the stock's debut. SpaceX opened at $150 on Friday, up from its $135 IPO price, and was trading around $172 in afternoon activity, making it the sixth-largest U.S. company by market value at more than $2 trillion.
EXPECT UPS AND DOWNS
If SpaceX behaves anything like the shares of Elon Musk's electric vehicle company Tesla, it will be more volatile than the average stock, driving options activity.
Tesla's five-year beta - a measure of volatility - is 1.81, according to LSEG data, where a reading of 1 means a stock's volatility is in line with the market.
"I think we're going to see a lot of volatility in the underlying stock," said Seth Hickle, chief investment officer at Mindset Wealth Management, adding that implied volatility in options could be "very high".
Investors expect activity to build around key events, including the company's first quarterly report as a public entity and potential major equity index inclusions. Nasdaq has already adjusted its rules to ease SpaceX's entry into the Nasdaq 100. MSCI said it will apply early inclusion rules for large IPOs, while S&P Global has ruled out fast-track inclusion into the broad-market S&P 500.
"We have been asked the question, 'What day will the options be listed?' more times than any IPO I can remember," said Chris Murphy, co-head of derivatives strategy at Susquehanna, a market maker.
Skeptics can also use options to express bearish views without the risk of shorting SpaceX shares outright, although it will not be cheap.
"With a short, your risk is theoretically unlimited, your borrow costs can be punishing, and in a thin float like SPCX’s, a short squeeze can wipe you out before you’re ever proven right on the fundamentals," said Luke Lango, chief technology analyst at financial research firm InvestorPlace.
(Reporting by Laura Matthews and Saqib Iqbal Ahmed in New York; editing by Megan Davies and David Gaffen)
