r/valueinvesting
Anyone considering to short SpaceX?
Author argues SpaceX's expected $1.75T IPO is overvalued, planning to short it or buy puts to profit from the inevitable post-IPO drop.
- Expected $1.75T market cap is overvalued with a P/S of 67-94x and nearly $5B in projected losses for 2025.
- IPO structure features a tiny initial float to inflate prices and laddered insider unlocks that will gradually flood the market.
- Empirical evidence shows IPOs tend to fall within months, driven by retail and pump-and-dump institutional buyers.
I think nobody here will debate that SpaceX‘s 1.75T expected market cap is overvalued at a price to sales of 67 to 94x and almost 5bn in losses in 2025.
I have personally never shorted a stock or bought puts, but this is such an impossible valuation and it is set up in such a way that it is almost guaranteed to fall: initial float is as small as possible to get the price really high and the laddered unlock means that shares from insiders and large investors will be hitting the market gradually rather than all at once. On top of that, empirical evidence shows that IPOs tend to fall in price within a few months time, massively underperforming.
The main buyers? dumb retail wsb types, index funds and institutional investors that want to ride the initial IPO pump and dump.
From this perspective, I see two possible options here depending on how confident we are in our predictions:
Option 1 is to buy puts. The benefit is that we can, not only benefit from a downfall of the stock, but hedge our portfolios against market beta. If the market crashes, spaceX will crash with it, providing needed capital to buy the dip in a way that maximizes geometrical returns. If it expires worthless, you keep rolling it. If SpaceX crashes regardless of the market, we benefit anyway. The problem with this strategy will be how expensive those puts are going to be and availability.
Option 2 is to short it. This is virtually free money if we are right, but shorting involves risk of permanent loss of capital. Not when a stock trades at a valuation that is impossible to justify and we are conservative in our margin requirements. However, bitcoin is also worth nothing and it survives on hype . A potential problem here would be availability of shares to short, but this will become easier as liquidity increases.
I was already considering buying puts as a hedge based on the book: Safe haven assets, by Mark Spitznagel. But never got into it. This IPO makes the case very attractive. Wondering what the investors experienced with these tools think.
“Free money if we are right” is a generally sound strategy
Some say the best strategy
Good luck with all that.
SPCX will not be trading on fundamentals.
Yup. Tesla is not trading on fundamentals either.
Lol. Shorting a growth stock sounds like an appropriate topic for a value investing sub.
Don’t forget Michael Burry got burned shorting Tesla.
Burry has been shorting with other peoples money since 2008. True regard
If SpaceX trades at 1.75 trillion it will be orders of magnitude more overvalued and with a clear path to it going down once investors are free to sell
This will be very dangerous to short in the first 90 days. Only 5% float on the IPO, ETF's buying in on day 1. There is likely to be a short squeeze during price discovery. Eventually as lockups expire, which happens in tranches, not all at once, then will be the better time to short.
Shorting is correct.
But the hard part is, how long can you hold on while you see the market dislocated from reality. You might need to see your investment in the deep red for months or years, before the hysteria dissipates.
A long period of time. The question is not time, is how much. But people in this sub aren’t even considering the thought. If I place 2% of my portfolio, it already hedges against whatever happens in the market and I have this optionality
That’s true because when you simply invest and the stock crashes, the worst you can get is it went to zero. But when you short, there’s no ceiling to how much you can lose and be in the red because it’s that can keep going up with no limit, but in the other direction, the limit is zero.
OP is correct, he will be shorting around a zero net delta. Even if SpaceX shoots to the moon, his portion of SpaceX in his ETF's cancel out the loss on the short. Vice versa if spaceX goes to zero, he likely does not make much on the short with the loss from the ETF.
Don't you know this => You can not short or buy puts (or options) for a specified number of days after IPO, that SPCX is not eligible for that !
Options are likely going to post in about a week after the IPO. Early shorting is VERY BROKER specific. IBKR will likely have some allocations sometime next week. Some of the smaller boutiques also. Borrow rate will be to the moon for a short time.
No, and that’s the reason I am asking. Thanks.
No, if Tesla hasn't taught people a lesson that it is very difficult to short a stock that has a cult like following then SpaceX will teach them a lesson.
Reading your justifications makes me want to buy SpaceX stock just because there is an army of retail traders who think they are just going to short the biggest IPO in history and make heaps of money. The market has a peculiar way of fleecing money from people like you, instead of reading books by Mark Spitznagel a man who has said stocks are going to drop by 80% for years maybe you should read "A Fool and His Money" by John Rothchild.
The main buyers? dumb retail wsb types, index funds and institutional investors that want to ride the initial IPO pump and dump.
This kind of thinking is going to get you absolutely crushed.
Just stay away from the entire thing. Everyone keeps coming back here with "this is a completely unpredictable circus, how do I safely make money off this" - you don't, you save money by not losing it on a half baked idea.
Yes, short the most hyped ipo in history because thats why. You cant predict what people are going to sell, you can decide what you are comfortable buying
dumb question: how does buying puts not cause permanent loss of capital? the risk is limited, but you lose capital nonetheless.
Definitely not dumb. Most of these posts have never really explored taking negative views, so when people are laying out their logic it's just stream of consciousness posts.
Yeah, I’ve considered it, but I think shorting SpaceX is a bad idea.
A lot of people here seem to have rigid valuation beliefs: they take value-stock frameworks and try to force them onto growth and speculative assets. That is a category error. If you don’t want to pay a premium for growth, or you don’t want to speculate, that’s completely fair. But the stock does not care about your framework. Not all assets behave like mature value stocks. If you short them simply because they look stupidly expensive on a DCF or current earnings basis, you can be directionally “right” on valuation and still get absolutely rolled.
Having worked in investment banking, I’d frame it this way: IPOs are not priced by sitting around and debating the “true” DCF value. They are priced based on demand for the shares. The syndicate runs a bookbuilding process, gauges institutional demand, and then prices the deal where they think they can clear the offering while usually leaving room for a first-day pop. That pop is not an accident. It reduces execution risk, rewards allocated investors, creates positive headlines, and helps validate the deal.
SpaceX may be wildly expensive relative to a mature business. I agree with that. But that is not what you are shorting. You are shorting a dominant, cult-like, scarcity asset tied to Musk, Starlink, launch monopoly economics, national-security relevance, AI optionality, and probably massive index/retail/institutional demand. That kind of asset can trade at a valuation that looks insane for much longer than a fundamentals-first investor expects.
Tesla is the obvious warning label. At IPO, Tesla looked extremely expensive if you forced a conventional value-stock lens onto it. It was loss-making, pre–Model S scale, and priced mostly on future execution. Then it ripped about 40% on its first trading day. The lesson is not that SpaceX is guaranteed to work. The lesson is that “this is overvalued” is not enough of a short thesis.
To short something like SpaceX, you need more than valuation discomfort. You need borrow, liquidity, timing, a catalyst, and a reason the market suddenly stops capitalizing the dream. Without that, you are not really making a sophisticated short. You are just standing in front of a hype train because your spreadsheet says it should slow down.
If there is a dump its going to be after earnings and when insider shares are unlocked... theres not going to be much keeping the price down til then i dont think. Buying puts on day of earnings could be a play tho not the IPO day..
SNK
https://www.youtube.com/watch?v=4tOf-A3MaOE check out 45mins in
Options trading likely will not be available at opening.
Long on an option is short theta. Time is the one edge you have as a small fish in a sea of sharks
Apparently more than you do. I do not need to predict the market. If I buy only 2% of my portfolio in puts that acts as insurance and improves geometrical returns by providing something that goes up when the market goes down. Putting those puts in an overvalued stock is a way of capturing that plus whatever alpha I can get if the stock goes down.
Good for you.