Positioning for Volatility and Index Rebalancing
Given today’s historic SpaceX IPO, we see the most immediate opportunity in trading the massive expected volatility. With the stock already indicating a 30% pop pre-market and huge uncertainty around how retail investors will behave, price swings are nearly guaranteed. We are positioning for this by looking to buy options strategies like straddles on SpaceX as soon as they become available, which profit from a large move in either direction. The sheer size of SpaceX is forcing a major rebalancing event across the market, creating a clear pair trade opportunity for the next few weeks. Passive index funds tracking the Nasdaq 100 will be forced sellers of other mega-cap tech stocks to make room for SpaceX’s enormous market weight. Recalling the volatility during Tesla’s S&P 500 inclusion in December 2020, we are buying put options on the QQQ ETF to hedge against or profit from this temporary downward pressure on the broader tech index.Opportunities in Thematic Rotation and Speculation
We believe this IPO signals a narrative shift in the AI trade, moving focus from the chipmakers to the companies applying AI in the real world. This suggests a potential rotation of capital that could play out over the coming months. We are exploring this theme by establishing long-term call option positions on SpaceX while simultaneously considering put options on semiconductor ETFs that may have seen their peak excitement. The CEO’s commentary linking SpaceX to Tesla also opens up a more speculative, long-term trade. The slightest hint of a merger would cause a massive rally in Tesla shares, which have underperformed the Nasdaq by about 5% over the last month. To capture this potential, we are looking at purchasing small, longer-dated call options on Tesla as a low-cost way to play this high-impact rumour.Start trading now — click here to create your real VT Markets account.
