SpaceX options debut with tails looking `dangerous,’ strategist says

SpaceX options showed about a 15% chance of the stock rising 50% on its first day of trading, with a similar chance of losing half its value in the next three months, according to Susquehanna.

The stock saw the fifth-highest trading volume of the day, Susquehanna strategist Chris Murphy wrote in a note on Tuesday.

“The largest transactions increasingly resemble hedges tied to future supply risk,” Murphy wrote. “The upside calls reflect another round of sharp bullish demand, while the downside puts reflect concerns about supply lock-in, valuation risk, and the possibility of initial post-listing enthusiasm fading. The result is a difficult trading setup. Tails look too expensive to buy, but they also look too dangerous to sell.”

SpaceX’s shares rose for another day after its initial public offering on Friday – up nearly 50% from its IPO price – and its market capitalization has surpassed Amazon’s and approached Microsoft’s valuation. The options reflect a heated debate about whether the company can live up to the initial enthusiasm.

Current pricing gives roughly a 15% chance that SpaceX will rise another 50% by September, while there’s also a roughly 13% chance that the stock will fall 50%, Murphy said.

“Investors are trading the story, they’re trading the action, they’re trading the excitement, they’re trading Elon Musk, but at some point the rubber hits the road in terms of fundamentals that have to match that excitement,” Peter Boockvar, chief investment officer of One Point BFG Wealth Partners, told CNBC’s “Squawk Box Asia.”

“If they can deliver then it’s definitely an upside, but the valuation is so large that the company will really need to show up in growth at that valuation,” he added. “I think this will take at least a few years.”