Yo Pit Crazies,
About 911.5 million shares of Space Exploration Technologies (SPCX) become eligible to sell tomorrow morning.
That's the first slice of a staggered lockup (the stretch after an IPO when insiders and early backers are barred from selling), and it more than doubles a float that started at roughly five percent of the company.
Everybody is calling that the scary part. I think it's a sedative.
More shares on the tape means an easier borrow (shares available to short sellers). Some shorts can finally cover and some early longs can finally get out. Two-sided flow is what makes an option market settle down, and this stock hasn't had two-sided flow since June.
One thing the headlines keep smudging: Elon Musk isn't in this tranche. His roughly 6.4 billion shares stay locked until June 2027. Thursday is employees and early backers, not the founder hitting the bid.
The market started pricing the overhang already. SPCX closed Wednesday at $108.27, down about 14 percent, on volume 72 percent above its three-month average. That came one day after revenue of $7.8 billion beat the $6.9 billion estimate, so this wasn't a bad print: it was $18.4 billion of quarterly capex landing on a float that's about to get much bigger.
SPCX 3 MONTH CHART
IV Told You Where The Money Was Going
Now the part that matters for the rest of the market. The S&P 500 bottomed Wednesday July 29, when the Fed held rates and stocks took their worst day in seven weeks. Then Microsoft (MSFT) ran 16 percent on Azure numbers, its best day since 2008, and made big AI spending acceptable again for the hyperscalers.
From there the index went to a record close of 7,737 on Tuesday. And every day of that rally, SPDR S&P 500 ETF (SPY) implied volatility (the market's price on future movement) went UP with it. IV on the out-of-the-money calls jumped at least three points during the rally, which is a giant move for strikes that far away.
Rallies usually kill IV. This one fed it.
Here's the proof. Tuesday the S&P gained 1.8 percent and the VIX rose a full point on the same day. S&P 500 call volume topped 4 million contracts, a record, and the put/call ratio fell to 0.83, the second lowest reading ever.
SPY Aug28 780 call IV
That's demand, not fear. Some whale or every fund in existence decided 20 percent off the Lag 7, my name for the Mag 7 while they act like laggards, was cheap enough, and they bought calls to get back in. Up went IV and up went SPY.
That IV drop is the setup I trade in Weekly Profit Cycles. When demand drains out of every strike, the next move gets underpriced, and 30-day options are where I want to own it.
The out-of-the-money calls I owned in Weekly Profit Cycles went up 10 times.
Tap this to see how you can position for it.
The Skew Says The Rush Is Over
Below is a snap of the Option Pit Skew-o-later, which delivers real time IV pricing with Livevol(™). Blue is the open, black is Tuesday's close, orange is Wednesday's close.
Note that IV in the 30-day cycle dropped a bunch Wednesday. IV is lower in every strike. Demand is lower in every strike.
SPY Sep 04 SKEW
What I Expect Now
Less action this week. Traders need to digest the unlock and a market sitting at all-time highs, and the drop in VIX tells me the big call profits already came in. Nobody pays up twice for the same move.
That leaves us waiting on a new catalyst, and I don't see one on the calendar. If SPCX trades quiet after Thursday, that only helps the case for a soft VIX.
Hopefully this was helpful,
Andrew Giovinazzi