SpaceX options traders price 6 percent earnings swing

SpaceX options market makers are pricing a 6 percent swing in the stock following its earnings report scheduled for Tuesday, according to Cboe LiveVol data. This expected move is significantly smaller than the 13 percent decline seen after the company's inaugural earnings report in August. That initial selloff marked a low for the shares, which subsequently rallied 60 percent over the next two months before reversing course and dropping as much as 19 percent in the past two weeks.

The reduction in expected volatility reflects a shift in the stock's implied volatility levels. SpaceX traded with an implied volatility of 62 on Monday, compared to levels above 110 before it released second-quarter earnings, according to ThinkOrSwim data. The lower implied volatility suggests that traders anticipate a less dramatic reaction to the upcoming financial results than they did during the company's first public report.

Trading activity in the options market has leaned toward bullish positioning in recent days. Barchart data indicates that while there are roughly equal numbers of open call and put contracts, daily trading volume has favored calls over the past week. On Monday, traders executed 1.1 million contracts, a volume 20 percent higher than the 30-day average. Of these, 665,000 were calls, with more being bought than sold. Additionally, traders bought more calls than puts and sold more puts than they bought, indicating a decidedly bullish flow as SpaceX approaches its second earnings announcement.

Specific strike prices reveal where traders are placing their bets. The most popular call contract for Friday expiry is the 170-strike, which requires a rally of about 14 percent to profit, according to SpotGamma data. There was also notable buying in the 190-strike call for month-end expiry. This contract, priced at 40 cents, requires SpaceX to rally 29 percent to break even.

For such gains to materialize, the stock would need to navigate upcoming share lockup expirations. Two lockup periods are scheduled: one two days after the earnings release and another on October 26. Together, these events will release over 1.6 billion eligible shares for sale. Previous lockup expirations on September 9, 10, and 24 had no discernible effect on the share price, suggesting the market has absorbed these supply increases without significant disruption so far.

The context for this earnings report includes a busy three months for SpaceX. The company delivered four astronauts to the International Space Station in record time and expanded its mobile network spectrum. Reports also indicate the company is eyeing a $40 billion debt deal to purchase Nvidia chips. CEO Elon Musk stated he plans to give shares to every child in America next year.