Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / Day Trading the SpaceX IPO Retail Allocation Cut
Transcript
- Lucas: So SpaceX is going public in what's shaping up to be the biggest IPO in history—$75 billion raised, targeting a market cap well north of $2 trillion. But here's the twist that day traders need to care about: the company just slashed its retail allocation to the low twenty percent range. Luna: Twenty percent? That's a big cut. I thought the whole narrative was about democratizing access to space—letting retail in on the ground floor. Lucas: Right, that was the PR line. But when the rubber hits the road, the underwriters and the company want stable institutional holders, not a bunch of Robinhood traders flipping it on day one. A smaller retail tranche means fewer shares available for the frenzy. Luna: And if today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, genuinely. That keeps us independent and focused on the trades that matter. So back to the allocation cut — what does that mean for the opening print? Lucas: With less retail supply, the institutional orders are going to be the dominant force in price discovery. If you look at the S&P 500 sitting at 7,431 today, up modestly for the week, and the Russell 2000 jumping over three percent in the last five days, there's a clear risk-on appetite for smaller, high-growth names. Luna: SpaceX isn't small, but it's high-growth. And the Russell strength suggests money is rotating into more speculative areas — that tailwind could amplify the pop. Lucas: Exactly. So the play here isn't about getting an allocation. Most day traders won't. It's about how you trade the first few hours of liquidity when the float is artificially tight. The VIX is at 17.99, down almost five percent on the week, so the broader market is calm. But the VIX of VIX — the VVIX — is at 95.91, up nearly four percent. Luna: That's a divergence I've been watching. Low VIX, rising VVIX usually means the market expects a volatility spike in one specific event, even if the broader index is quiet. Lucas: Bingo. That event is SpaceX. So day traders should be looking at VWAP bands from the pre-market. If the stock opens well above the pre-market VWAP on low volume, you know retail is getting crushed and institutions are drip-feeding shares. That's a short-term top signal. Luna: What about the prediction market data? I saw Kalshi and Polymarket have the probability of a two trillion dollar market cap debut at over sixty percent. Lucas: That's a useful sentiment gauge — prediction markets are often more accurate than analyst estimates. But for day trading, you need to watch the actual order book. Level 2 data will show you if the bid side is deep with small retail orders or if institutions are layering in large blocks. Luna: So the setup: if you see a big gap up but the depth of market shows mostly retail bids at the ask, you fade it. If institutions are buying the dip, you go long. Lucas: Right. And because the retail allocation is only twenty percent, the float is smaller. That magnifies the moves. A five hundred thousand share order can move the price more than usual. So you need to size your positions down, maybe half your normal risk, because the liquidity profile is unknown. Luna: Also worth noting: the last big retail allocation cut was for Arm Holdings back in 2023. It opened around ten percent above the IPO price, then drifted lower over the first week. Lucas: Great comp. Arm's retail tranche was also reduced, and the stock didn't have the same sustained momentum. But SpaceX has a cult following — the brand itself drives demand. That could create a different dynamic. However, the fundamentals of a tight float still apply. Luna: One thing I'd add: the VVIX at 95.91 is above its historical median of around 80. That suggests options market makers are pricing in a big move in VIX itself, which is really just a proxy for tail risk. So if you're trading SpaceX, you might want to hedge using VIX calls rather than puts on the stock directly. Lucas: That's a pro-level hedge. If the stock gaps up and then crashes, VIX spikes, and your VIX calls gain value. It's a cleaner way to hedge the event tail than trying to short the stock, which could be hard to borrow. Lucas: Let's talk about the actual trade structure. Say the IPO prices at $200 per share — that's the rumored price — and the first trade prints at $250. That's a twenty-five percent pop. If you're a day trader, you don't chase that. You wait for the first pullback to buy on weakness, or you short the second leg up if volume is fading. Luna: And how would you gauge the volume fading? Use the tape reading — if you see big trades at the ask but they're getting smaller on each push higher, that's exhaustion. Lucas: Exactly. And with the Nasdaq Composite down marginally for the week — it's at 25,889, off about two-tenths of a percent — there's no tech-driven euphoria to carry it higher. So this IPO is its own island. It rises or falls on its own dynamics. Luna: I also want to mention the $75 billion raise. That's enormous. The company is selling a lot of shares, but the secondary float — what actually trades on day one — might be much smaller because of lockups. The retail allocation cut makes that float even tighter. Lucas: Right. Only insiders can sell on day one, and most are locked. So the actual tradable float could be less than ten percent of the total shares. That's micro-cap level float on a two trillion dollar company. That's why you see predictions of massive volatility. Luna: So the day trader's edge here is understanding the mechanics: how the allocation cut creates a supply-demand imbalance, how VWAP bands and level 2 data reveal the true order flow, and how the vix vvix divergence informs hedging. Lucas: Summed up perfectly. One more thing: keep an eye on the Nasdaq circuit breakers. If the stock moves more than ten percent in five minutes, trading pauses. That's going to happen multiple times on day one. Don't get caught in a gap — set your stops to limit loss during halts. Luna: Good point. So you're looking at a trade that's more about risk management than directional conviction. The allocation cut essentially forces day traders to be more tactical. Lucas: Exactly. And if you're not comfortable with that level of uncertainty, you can always sit on the sidelines and watch. But for those who want to play, the setup is clear: tight float, strong retail demand, institutional control, and a VIX structure that's pricing in a potential blowup. Luna: I'll be watching the pre-market VWAP at 7:00 AM tomorrow. If it's stable around the IPO price, that's a sign of orderly price discovery. If it's gapping up twenty percent, that's a red flag. Lucas: Good. And one last data point: the Russell 2000's three percent gain this week tells us small-cap traders are feeling bullish. That sentiment could spill over into SpaceX if the open is reasonable. But if the stock gaps too high, that sentiment flips to profit-taking. Luna: All right, Lucas. So for day traders, the game plan is: watch the pre-market VWAP and level 2, size down, use VIX calls as a hedge, and don't chase the opening pop. Lucas: That's the playbook. Now let's see if the market gives us the actual setup. Thanks, everybody.