SpaceX shares passed a test Thursday. The test was not catching fire. Not exploding. Not getting sued into oblivion by the SEC. The test was that a lock-up provision expired and the stock didn't immediately crater like a Cybertruck's resale value.
This counts as a key test now. The bar has never been lower. Shares traded higher even as insiders gained the legal right to dump their holdings onto whoever was dumb enough to buy them. Sophisticated traders interpreted this as bullish. The bottom may be in, they announced, using the kind of confidence normally reserved for people who have never been right about anything.
Here's what happened: early investors and employees could finally sell. They didn't sell everything immediately. Therefore, according to advanced financial theory developed by people who failed upward into hedge funds, the stock has nowhere to go but up. The logic is airtight if you've suffered a recent head injury.
The sophisticated traders are betting the bottom may be in. Not that it is in. May be. They're sophisticated enough to hedge their language but not sophisticated enough to avoid catching knives in a private market with zero liquidity and pricing determined by whatever Elon Musk tweets between 2 and 4 a.m.
Lock-up expirations are designed to prevent early investors from immediately destroying the stock price by selling to mouth-breathing retail traders who think SpaceX is undervalued because they saw a rocket land once on YouTube. When the lock-up expires and the stock goes up anyway, it means one of two things: either the insiders know something, or the retail traders buying from them know nothing.
Sophisticated traders are going with option one. They're betting the bottom may be in. The rest of us are betting those sophisticated traders are about to discover what the word may means.
Photo by Sven Piper on Unsplash
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