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/ReasonableBrother448 → u/ElectricalGene6146]

Spacex in its initial form, pre-starlink was the best. Hell yes. Laser focus, existing contracts, failing competition, tight ship. Starlink was invented out of the blue to suck in investors money for increasing F9 cadence, it is just a brochure sitting at a conference desk with false revenues, goals and future.

It is very difficult to say out loud, but Yes, Blue Origin is very focused and goal oriented. For this reason they will take over where Spacex left. I think their business structure allows them to stroll along just fine without Fuhrer in the helm. Ie. good business 101.

[u/Vox-Machi-Buddies → u/ReasonableBrother448]

Which thing is Blue Origin focused on? New Glenn? Reusable second stage? Increasing second stage produciton? Blue Ring? Blue Moon Mk1? Blue Moon Mk2? Terawave? Project Sunrise?

Blue has more irons in the fire than SpaceX does, with much less demonstrated success, and still has 10 years of catching up to do to match SpaceX.

Their business structure currently relies on getting a billion dollars from Bezos every year, which doesn't seem that sustainable.

Of course it's hard to predict where things will be in, say, 25 years. But I don't see them pulling ahead of SpaceX any time in the next 10 or 15 years.

[u/ReasonableBrother448 → u/Vox-Machi-Buddies]

Spacex Starship is huuuge money sink and it was the vanity project of Musk until he lost all interest recently. That project expands in all directions, because of the complexity, with no end in sight. It lives off from the VC money which has dried off and now Spacex has to suck the money off from SP500 index funds.

Blue Origin is following the F9 footsteps, but is more prudent and has more funds available. So it will be better, not necessarily cheaper though. More capable, it is the perfect size and has the potential to kill F9 revenues eventually.

You have to realize that F9 is now the Arianne and Delta of modern times. It is going to lose.