SpaceX slide puts IPO buyers and options traders on defense

SpaceX shares dropped again Friday, putting many investors who bought the stock after its initial public offering below their entry price. For everyday investors, the move is a reminder that even a high-profile IPO can swing hard once the first rush of demand fades.

CNBC reported that SpaceX fell 5.5% on Friday, extending a 10-day decline and touching $122.12. That low was about 9% under its $135 IPO price, and the stock was down 44% from its intraday peak of $225.64, according to CNBC.

The weakness has also come as the broader market cooled. CNBC reported that the Nasdaq-100, which had been less than 1% from a record when SpaceX hit its high, was down 6% from that level.

Options traders are split under the surface

The options market showed stress, but not a clean rush for the exits. Options are contracts tied to a stock’s future price. A call can benefit if the stock rises, while a put can benefit if the stock falls or can be sold by investors willing to take on downside risk for income.

SpaceX traded just over 500,000 options contracts by late Friday morning, making it the 11th most active ticker in the market at that point, CNBC reported. That was still heavy activity, though CNBC noted that Micron, the VIX, the iShares Russell 2000 ETF and Apple were all more actively traded.

SpotGamma data cited by CNBC showed about $350 million in SpaceX options premium traded Friday, with $290 million tied to puts. Seven of the 10 most active contracts by volume were puts, according to SpotGamma.

That headline put demand looked bearish, but the details were more mixed. CNBC, citing SpotGamma and Cboe LiveVol data, reported that more than half of the put premium was sold, and nine of the 10 largest trades by volume had a bullish profile. Selling puts can signal that traders expect the stock to stay above a certain price, or that they are willing to buy shares lower if assigned.

One large trade showed a more defensive setup. CNBC reported that a trader bought $2.6 million of 140-strike puts expiring Friday and sold the same number of 135-strike puts, cutting the cost of the position by $1.6 million. That structure can limit both the cost and the potential payoff compared with owning puts outright.

IPO demand met a lower tape

The drop has caught both retail traders and Wall Street firms after a strong debut. CNBC reported that Morgan Stanley and Goldman Sachs, the underwriters that led the offering, chose to raise an additional $11 billion in SpaceX equity after the stock’s early rise.

Don Kaufman, co-founder of TheoTrade and a former director at TD Ameritrade, told CNBC that investors often feel they missed out on hot IPOs. “Look at the positive side of it, now you can go in there and get as much SpaceX as you want,” Kaufman said.

Kaufman also told CNBC he had been selling far out-of-the-money puts, a term for contracts with strike prices well below the current share price. “I’ll buy it all day long at $100,” he said, adding that SpaceX would still have a valuation above $1 trillion at that level.

CNBC reported that SpaceX’s market value was about $1.6 trillion during Friday’s trading. The stock’s decline shows how quickly sentiment can shift after a marquee IPO, especially when traders use options to express both fear and continued interest at lower prices.

This story draws on original reporting from CNBC.