SpaceX Faces Short-Selling Pressure as Major Institutions Brace for a Sharp Rally

[Financial News]  

SpaceX shares have surged for two straight days.
On the 4th, local time, Elon Musk's space company jumped more than 8% intraday. That followed a 5.7% gain the previous day, marking a sharp two-day rally.
Although concerns are rising ahead of the expiration of IPO lockup shares on the 6th, the stock has at least turned upward for now.

SpaceX shares have already fallen more than 40% from the offering price. In the market, short selling has become the dominant bet on further declines.
Global online outlet The Six Five reported on the 4th, citing data from S3 Partners, that more than one-third of SpaceX shares trading in the market are currently sold short.
These short sellers borrowed shares and bet on a decline. If SpaceX stock falls further as expected, they stand to profit.
But the mood is starting to shift.
Analysts are gradually giving more weight to the possibility that they could be forced into a short squeeze. If SpaceX shares rise, losses can theoretically expand without limit, so short sellers would have to rush to buy back shares. That buying pressure can push the stock even higher. That is a short squeeze.
Although the 912 million shares set to be unlocked on the 6th are equivalent to three to four times the current float, the biggest reason is that, after the sharp price drop, it is unclear how many of those shares will actually hit the market.
In particular, most holders of the locked-up shares are early investors and employees who have high expectations for Musk's future. They are long-term investors who have placed their trust in him.
In addition, many of them have already locked in profits through derivatives and other instruments.
That means the amount of stock actually released could be far smaller than expected.
If buy orders pile up, especially during August's typically thin trading conditions, short sellers could suffer massive losses.

As the possibility of a short squeeze is being raised, unusual activity is also being seen in the options market.
Despite the two-day rally, there are still a large number of call option contracts outstanding for a scenario in which SpaceX shares, now still in the $120 range, jump to $330.
According to CNBC, more than 450,000 open interest contracts are concentrated in the $330 call options expiring on the 7th. That means more than 450,000 rights remain to buy SpaceX shares at $330, no matter how sharply the stock surges.
Because SpaceX shares have fallen sharply, many of these call positions would normally have been closed early. The fact that more than 450,000 contracts are still outstanding suggests that a further stock surge cannot be ruled out.
According to options data provider SpotGamma, this buying pressure is more likely coming from large financial institutions rather than retail investors or ordinary hedge funds.
The analysis is that they are not buying because they truly believe the stock will soar to $330, but because they are using the options as a hedge to reduce risk in case of a sudden rally against their bearish positions.
They could also profit if SpaceX shares rise to around $215 before the options expire on the 7th, since the option prices themselves would climb.SpaceX closed the regular session at $124.52, up $9.99, or 8.72%. In after-hours trading, however, it slipped 6.4% to $117.32.
The company said revenue surged 92% in its first quarterly earnings report since the IPO, but shares fell sharply after hours on concerns over massive AI investment spending.
[email protected] Song Kyung-jae Reporter