SpaceX will go into the Nasdaq-100 on Tuesday, unleashing a wave of passive buying of the stock from mutual funds and exchange-traded funds that track the index. The technology and rocket-launch company will be added to the Nasdaq-100 at the start of trading on Tuesday with a capitalization at three times its raw float of $75 billion, translating to a index weight of about 1.3%, according to a recent JPMorgan estimate. While index inclusion will put upward pressure on the stock, expiring lockups over the coming weeks and months will likely add downward pressure as insiders unload shares. SPCX 5D mountain SpaceX shares in the past five trading days Meanwhile, SpaceX’s small weight will likely limit the passive buying pressures on the stock price, though it could amplify them depending on the level of demand. Volatility versus the stock’s weighting in the index Amid so many contrary forces, analysts and investors are anticipating a high degree of volatility and advising caution as hedging activity around the stock simmers. JJ Kinahan, senior vice president at Cboe, told CNBC Monday that investors need to be prepared for a $20 move in the stock over the next week and a half. “We know volatility is high. There’s a sense volatility may increase. Are you comfortable with a $20 expected move over the next 11 days?” he said. “People tend to say, ‘Oh, man – the stock can go up $20.’ Yes, it can. But it can also go down $20.” Only about 4% of SpaceX shares were made available for sale during the company’s initial public offering, despite a larger-than-average allocation within that portion for retail investors. By Nasdaq-100 inclusion rules , that will translate to a relatively modest index weight: JPMorgan’s 1.3% estimate would put it in roughly 21st place within the index, behind names like Nvidia , Walmart , Intel and Tesla . This means the passive buying effects on the stock price are likely to be muted in the early days, analysts told CNBC. “Make no mistake, this is still very high volatility,” Mike Khouw, chief strategist at OpenInterest.PRO, said. “But the smaller the percentage weighting within the index that any given constituent holds, the less stock anybody trying to track that index is going to have.” Paul Meeks, head of tech research at Freedom Capital Markets, said the Nasdaq 100 index inclusion will be “less meaningful than people expect.” “This is formulaic and everybody knows the formula [so] I don’t know if it’s going to be that meaningful,” he said. Jeff Jacobson, head of derivative strategy, at 22V Research made a similar remark in a June 21 note to clients: “The buying needed on the index inclusion is likely to be much less than people likely initially suspected.” However, the small float and relatively large retail allocation means that ETFs and mutual funds will be seeking to purchase a “sizeable portion of the tradeable pool,” analysts with Arete Research commented in a June 18 brief. They described this dynamic as “likely reflexive on the way up, but potentially fragile on any reversal.” The impact of expiring lockups In recent weeks, multiple analysts have noted that the main driver of index demand for SpaceX will come not from the Nasdaq-100 but from the S & P 500 , which is not expected until next year. S & P Dow Jones Indices declined to fast-track SpaceX into its benchmark. “The deepest index demand remains shut out for now as the S & P 500’s earnings screen and 12-month seasoning exclude SpaceX from that index inclusion for at least a year,” Arete researchers said. Still, SpaceX’s low float will dampen the price effects in that index as well, as Jefferies analysts said in a June 5 brief. “Given the low float, the index weight will not be as impactful as anticipated,” Jane Gibbons and colleagues at Jefferies wrote. Lockups for insiders are expiring on a rolling basis in the coming weeks and months, which could add selling pressure to the stock price as index inclusion adds buying pressure. Some restrictions are lifted in various tranches between 70 and 135 days after the June 12 IPO , while rules for CEO Elon Musk’s shares, along with some other big investors, lift 366 days after the IPO. Analyst Charles Minervino at Susquehanna described these as a “near-term overhang” for the stock in a June 23 analysis. However the stock moves in the coming days and weeks, investors are certainly preparing contingency plans. “If I look at the last five days of options trading, we’re seeing two-and-a-half times more than normal today,” Cboe’s Kinahan said. “People [are] trying to hedge themselves to the downside. Many people [are] speculating going into the rebalancing.”
