Here’s how SpaceX’s Nasdaq-100 inclusion might affect options pricing

SpaceX The bulls, unlike the Tesla traders who came before them, are proving to be a devout lot.

The daily options flows came a day before the stock was quickly included in the Nasdaq 100, the index behind the nearly $500 billion index, and nearly a month since it began trading. Invesco QQQ fundElon Musk’s new giant is estimated to achieve a weighting of roughly 1%.

Nearly half a million SpaceX options were traded at noon Monday; That’s slightly below average since inception, but still good enough to rank as the fifth most popular stock for options trading. According to ThinkOrSwim data, there were more than 300,000 trades compared to less than 130,000 puts; The number of purchases was almost five times greater than the number of puts. Musk’s other trillion-dollar company, Tesla, consistently ranks among the most active stocks for options traders.

Nasdaq’s inclusion of SpaceX would, in theory, cause the tech-heavy index to become marginally more volatile overnight given SpaceX’s wild swings, but Nasdaq’s rules limit the weighting of low-float stocks, so the impact would likely be minimal. How SpaceX releases shares around the lockup timeline, how passive index buyers treat their inclusion, and overall demand for options will determine whether SpaceX can remain as wild as it was when it launched.

SpaceX is trading at an implied volatility of 92, which is almost 3.5 times QQQ, the most volatile compared to the S&P 500 in almost 20 years. Presumably, this could mean that SpaceX volatility should decrease over the long term as long-term-minded investors buy and hold index funds and their components.

The opposing view is that these index holders could use SpaceX options to block SpaceX’s inclusion, which could keep trading demand high. SpaceX’s volatility also makes call sales attractive as a source of income, which will drive option volume. Add in the fact that high volatility has been a key characteristic of many of the bull market’s biggest winners, keeping calls in strong demand despite expensive premiums, and it’s a case in point that SpaceX volatility could continue even if the stock continues to rise.

Shares fell below $160 on Monday after Thursday’s rally, but there was an 8% selloff last Wednesday.

The top 10 options contracts by volume on Monday were all calls. The most popular was the 450-inning call, which ended on July 17; this was a 15 cent trading contract that needed a 180% increase by the end of next week to break even. Larger investors preferred the 180-strike call, which expires on Friday.