The market value of Musk's stocks has evaporated by US$1.5 trillion. Space X's lock-up period is about to be lifted and it will face a new test
It's been a rough month for Elon Musk - if there's such a thing as tough for the world's richest man. Since mid-June, SpaceX and ’s market value has evaporated by a total of US$1.5 trillion, with SpaceX down nearly 50% since its peak and Tesla down 18% since last week’s earnings report. Next week could be even crazier depending on options pricing surrounding SpaceX's earnings report on Tuesday, and the end of the SpaceX insider lock-up period in two days. Options prices show that SpaceX's stock price may fluctuate 15% after the earnings report, and its stock implied volatility reaches 122 - higher than all companies in the S&P 500 index, second only to Tuesday's 16% decline . The earnings report also triggers the company's unique lock-up period, which allows insiders to begin selling shares earlier than the usual 180-day period. This makes a total of more than 900 million shares (20% of its eligible locked shares) available for trading. The early arrival of the lock-up period two days after the earnings report sets up a tricky situation for options traders - who can usually count on a stock's implied volatility to decline after the earnings report. Earnings bring predictable risk to shareholders, who often need to hedge their positions, and once the risk has passed - even if stock prices plummet - volatility typically falls. For SpaceX, traders must think: Is it the first earnings report that poses greater risk to the stock, or the lock-up period? If the lock-up period causes insiders to sell shares, it could mean that volatility will either remain elevated or increase after the earnings report. The SpaceX contract expiring on August 7 has an implied volatility of 160, while Tesla is currently trading at an implied volatility of 52, according to thinkorswim. SpaceX traders generally maintained a positive sentiment throughout the decline. There was more daily call trading volume than puts, with traders buying nearly 100,000 calls on Tuesday compared to just 46,000 puts. Still, the divide is widening between small traders and big traders, with the latter leaning more towards caution. According to SpotGamma data, the most traded contract on Tuesday was the 330 strike price call option expiring next Friday, with traders buying $770,000 worth of the contract through 21,000 transactions. Sorted by trader size, the overall trend is still bullish, but the degree of aggressiveness is greatly reduced: the 130 strike price call option expiring in November has only been traded 5,400 times, but the premium is as high as 8.7 million US dollars.