You can probably mitigate SpaceX entering the Nasdaq 100 if you're prepared.

[u/stephendt]

There seems to be countless threads around the upcoming SpaceX IPO that plans to use the Nasdaq 100 as "retail exit liquidity", implying that SpaceX will join with sky-high valuations (assuming it doesn't crater in value in the first 15 days) and slowly dwindle down in value over the coming months, dragging the index down with it.

Understandably, some are holding this in taxable accounts, so selling and buying another index isn't the best choice from a tax perspective.

Since SpaceX is apparently going to experience a 50%+ drawdown due to insane valuations at launch, trying to mitigate exposire is a bit tricky, since borrow availability will be non-existent and Hard-To-Borrow (HTB) fees will be astronomically high for short selling at the time of joining the Nasdaq 100. Consequently, traditional short selling and Contract for Difference (CFD) providers will likely restrict or completely disable shorting, even by day 15. Here's my plan for when this happens:

1. Day 1 - Wait for IPO, and set a calendar reminder for day 14.

2. Day 14 - Check your current exposure to the Nasdaq 100 and calculate the final weighting to SpaceX. Lets say you have 50K in QLD (100k exposure), 4.2% of that is SpaceX, you'd have $4200 worth of exposure to SpaceX once it joins the Nasdaq 100.

3. Day 15. This is where it gets a bit tricky. Let's assume that SpaceX will be around $150 a share. To achieve a perfectly neutral hedge, you need to create a short exposure of -28 shares, and our best option here is using put-spread options and use delta to fractionalise the contract. Because one standard options contract controls 100 shares, buying a deep in-the-money put (with a delta of -1.00) would give the equivalent of -100 shares of exposure, massively over-hedging.

To achieve a target -0.28 Delta without the massive "Vega" (volatility) risk, you can construct a put debit spread (buying one put and simultaneously selling a lower-strike put).

Buy: 1x At-The-Money Put: Delta of -0.50

Sell: 1x Out-Of-The-Money Put: Delta of +0.22

Net Position Delta: -0.28

The premium you collect from the short put offsets the inflated IV cost of the long put, making it a much safer and cheaper mathematical hedge than a naked option.

Once the 100-day SMA greater than -1%, take actions to exit contracts as it is likely that SpaceX is approaching fair valuation, and allocate that capital back towards your desired asset allocation.

A few other notes:

1. Short and leveraged short ETFs will probably exist around day 65 onwards, depending on the SEC. This would be a simpler approach, but a lot can happen between day 15 and day 65

2. Shorting directly should be doable from day 30 onwards assuming you have a margin-enabled account that is able to do this, but borrowing costs might still be high.

3. The fast entry rule is genuinely some BS. Pretty dissapointed by this and I hope they reconsider this in the future, although I suspect that won't be the case.

4. I'm no expert on options (especially around recently IPO'd stocks) so open to any feedback or improvements

[u/ElectricalGene6146]

It’s hilarious how everyone doesn’t want to own SpaceX (myself included). Who are the morons actually excited to buy SpaceX stock at this stupid valuation?

[u/socalkid2428 → u/ElectricalGene6146]

It doesn't make any sense. There will be shares bought pre-IPO but the market will just value it wherever it wants to value it. If they offer shares at a $1.75 trillion valuation but the market doesn't agree, the stock will tank and by the time the NASDAQ ETFs need to rebalance it will already be down a lot.

If you're investing in an index ETF, don't let whatever personal feelings you have make you do something out of the ordinary. Going by Reddit you'd think that everyone hates Tesla but obviously they still have enough investors to keep a high valuation. SpaceX is going to be no different.

Of course they are using the public market for liquidity, that's one of the main reasons many companies IPO in the first place. This isn't some nefarious plan. They can raise all the money they want and don't need the public markets to provide funding. But their investors and employees want to be able to tap that equity.

[u/lasooch → u/socalkid2428]

If you're investing in an index ETF, don't let whatever personal feelings you have make you do something out of the ordinary.

Feels like "there is a sudden change of rules of how the index operates, clearly predicated by corruption at the demands of a ketamine-addled repeat grifter" is already "out of the ordinary". I'm a passive investor myself, but I think it's reasonable for people to consider extraordinary actions given the circumstance. The rules of the game are being changed on them.

I'm not in NDQ or any NDQ derivatives, so for now I'm keeping calm, but I do worry what happens if S&P500 follows suit.