SpaceX Stock Exhibits Unusual Stability, Capturing Options Traders' Attention

Following a dramatic initial surge and subsequent sharp decline, SpaceX shares have entered a period of surprising equilibrium. For the past three weeks, the stock has traded within a narrow $10 range, hovering around the $140 mark. This stability is a significant departure from its debut, which saw it as the most volatile stock among its large-cap peers.

Implied volatility, a key indicator of options pricing, for SpaceX has significantly decreased to 57, a stark contrast to the over 120 recorded before its earnings report. Data from ThinkOrSwim reveals that at its IPO, SpaceX was the most volatile stock in the S&P 500; currently, it wouldn't even rank in the top 25.

Proponents of the stock suggest this calm is a reflection of the confidence held by insiders and early investors who have retained their shares despite the expiration of the company's initial equity lock-up period. Furthermore, the inclusion of SpaceX in major indexes such as the Nasdaq-100 and the Russell 1000 is believed to have a moderating effect on its price fluctuations.

"If you're a wild man raised by wolves in the forest, you're going to have a different vol than the guy who lives in the city who's going to have an average personality of the city he lives in," commented Noel Smith, CIO and founder of Convex Asset Management, who accurately predicted the drop in SpaceX's volatility. "SpaceX now lives in the city."

Options contracts for SpaceX expiring on September 25th are currently pricing an approximate $16 move, signifying an expected 11% swing. In comparison, larger price movements are anticipated for companies like Intel, Robinhood Markets, Corning, and Dell Technologies.

According to Barchart's open interest data, there are currently more outstanding put contracts than call contracts for SpaceX, with the put/call open interest ratio at 1.1. This ratio has decreased from an all-time high of 1.2 recorded on Monday, as this week's trading volume has shown a preference for call options.

SpotGamma data indicates that out of approximately 500,000 SpaceX options contracts traded on Thursday, 335,000 were calls. Of these calls, an estimated 168,000 were likely purchased, compared to only 75,000 purchased put contracts.

The top seven most actively traded options contracts were all calls. The most popular among these was the 144-strike expiring tomorrow, a trade that requires the stock to increase by another 3.5% this week to be profitable.

Investors may want to exercise caution before aggressively buying puts or calls. While implied volatility has declined, it still exceeds the stock's realized volatility. This means that outright purchases of options could appear deceptively inexpensive.

"Just because it's the cheapest it's ever been relative to itself doesn't mean much," added Smith from Convex. "I'd say the vol feels pretty fair-ish here, but if you really pressed me on what I'd do at vol 54 or 55, I'd still say sell it."