"Textbook-level" hedge! SpaceX options see explosive volume on first trading day, institutions use "zero-cost hedging" to lock in huge unrealized gains

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The rocket-like surge in SpaceX’s stock price after its listing is fueling a rare hedging frenzy in the options market.

Last Friday, SpaceX made a record-breaking debut on Nasdaq, with its market value surpassing $2.5 trillion. On Tuesday, SPCX options began trading, breaking the history record for first-day options trading following an IPO, with nearly 1.8 million contracts changing hands.

Behind this craze, the market shows a clear polarization: retail investors are highly enthusiastic about chasing gains, while institutional funds are quietly deploying sophisticated hedging strategies, using “zero-cost” structures to lock in the huge unrealized gains since the listing.

Options analyst Michael Khouw pointed out that the high implied volatility presents a rare hedging window for shareholders, but also poses sizeable risks of time value erosion for speculative buyers. For institutions holding low-cost positions, now is the prime time to use structured options tools to manage risk.

Explosive volume on day one, bipolar sentiment

On its first day of listing, SPCX options saw nearly 1.8 million contracts traded, setting a new historical record for first-day options trading after an IPO, reflecting intense market focus on this “IPO of the century.”

However, the trading volume is driven by two distinctly different types of participants. One notable large trade involved a buyer scooping up 7,000 July-expiry call options with a $325 strike price, at a cost of about $7 per contract, totaling around $490,000. This trade bet that SPCX will surge over 50% from the current closing price of about $201 within just over a month.

Michael Khouw clearly expressed skepticism. He noted that implied volatility is generally inflated in the first few post-IPO trading days, and out-of-the-money call options face severe time value erosion. Speculating on a giant $2.5 trillion company as if it were a low-float concept stock is a highly risky move.

Institutional moves: “zero-cost collar” locks in gains

In sharp contrast to speculative buying, another trade regarded as a "textbook" institutional hedge caught market attention.

According to reports, one institutional investor executed a 7,500-contract September-expiry 205/225 collar combination—buying puts with a $205 strike and selling calls with a $225 strike, netting $2 per contract premium, achieving so-called “zero-cost hedging” or even a slight gain.

The protective effect of this strategy is clear and measurable: If SPCX falls below $205, the holder’s downside loss is capped at $207 (put strike plus premium received); if the stock rises, the upside gain is capped at $227, still offering over 10% potential upside from current prices.

Michael Khouw believes the deal is well-structured, especially suitable for institutions who acquired positions at low cost during or before the IPO and currently hold substantial unrealized gains. By collecting premium to subsidize protection costs, they lock in downside risk while maintaining some upside participation, making it an optimal risk management solution for long positions amid high volatility.

Selling out-of-the-money puts: converting volatility into income

For those who haven’t yet acquired SPCX shares and wish to capitalize on high implied volatility, Michael Khouw suggested another strategy: selling August-expiry, $135 strike out-of-the-money puts, which currently offer about $8.10 premium per contract.

The logic: the $135 strike matches SPCX’s IPO price; if the stock price remains above this level by expiration, the options expire worthless, and the seller keeps all premiums. If the stock plunges and is exercised, the seller’s effective purchase cost is $126.90 (strike minus premium), implying a roughly 33% discount versus current prices, and below the IPO price, offering a substantial margin of safety.

Based on a roughly two-month holding period, this strategy yields about 6% immediate risk-adjusted return, translating to an annualized return of about 36%.

Michael Khouw also cautioned that high implied volatility in early IPO options is common, and this premium will gradually diminish over time. Thus, whether hedging long exposure with a collar or collecting premium by selling out-of-the-money puts, acting early maximizes the advantage from current volatility.

Risk Warning and DisclaimerThe market has risks, investments require caution. This article does not constitute personal investment advice, nor does it take into account the unique investment goals, financial status, or needs of any individual user. Users should assess whether any opinions, views, or conclusions in this article suit their specific situation. Investing based on this information is at your own risk. ```