How strong is the demand for SpaceX (SPCX.US) IPO? Oversubscribed subscriptions, "greenshoe" exemption from commission, and options expected to open next week!

Last Friday witnessed history in the global capital markets. Elon Musk's rockets, satellites, and artificial intelligence giant SpaceX (SPCX.US) officially went public on the Nasdaq. On the first day of trading, SPCX's stock price surged from the $135 IPO price to as high as $175, eventually settling around $161, up over 19% for the day. Behind this wealth celebration, however, was a pricing power game where Musk squeezed the top Wall Street investment banks to their limits. Details of a rare underwriting agreement leaked out: Goldman Sachs Group, Inc. and Morgan Stanley, among other banks, not only accepted an unprecedentedly low base fee but also agreed to charge zero fees for the "greenshoe option" in the billions. The record low fee and the rare $11.25 billion "greenshoe" zero fee stand out This epic initial public offering raised a staggering $750 billion, surpassing the $29.4 billion IPO fundraising record set by Saudi Aramco in 2019 and claiming the title of the largest IPO in global capital market history. At the IPO price, SpaceX's valuation reached $1.77 trillion, with an estimated fully diluted valuation of about $1.8 trillion when factoring in employee stock options and restricted stock units, officially crowning Musk as the world's first trillionaire. In terms of underwriting lineup, Goldman Sachs Group, Inc. served as the lead underwriter, with Morgan Stanley, Bank of America Corp, Citigroup, and JPMorgan Chase as joint lead underwriters, and 18 other banks participating in distribution, almost encompassing Wall Street's major investment banks. SpaceX demonstrated remarkable bargaining power in the underwriting fee negotiations. In this groundbreaking IPO fundraising, Musk not only secured underwriting fees significantly lower than the industry average but also negotiated an unprecedented special condition beyond the base commissions - if the underwriters were to exercise the oversubscription option commonly known as the "greenshoe" to sell an additional 15% of shares, SpaceX would not have to pay any additional underwriting fees for this $11.25 billion worth of new shares. Under the agreement reached between SpaceX and the underwriting team, the company agreed to pay the underwriting team $500 million for this issuance, equivalent to about 0.67% of the $750 billion IPO fundraising total. Even at such a meager fee rate, this is still one of the highest underwriting fees in Wall Street history. Investment banks typically charge 4% to 7% in underwriting fees for initial public offerings. For large-scale IPOs, as banks need to encourage investors to inject billions of dollars at once, this fee percentage usually drops significantly, but even then, the fees are usually higher than 1%. SpaceX managed to lower the fee rate to around 0.67%, which is an extremely low level. The more groundbreaking term is the "greenshoe" mechanism. According to the underwriting agreement, if the underwriters agree to exercise the overallotment option (commonly referred to as the "greenshoe") - selling an additional 15% of shares - SpaceX would not have to pay any additional fees. This means that Goldman Sachs Group, Inc., Morgan Stanley, and the other banks involved in the offering would miss out on an additional $75 million in fee income from this transaction. In the SpaceX deal, the greenshoe option granted the underwriters the right to sell an additional $11.25 billion worth of shares, a scale exceeding the overall financing of most IPOs. The fact that underwriters agreed to do this work for free makes it even more remarkable. The underwriters have 30 days to exercise the greenshoe option. As the lead banks, Goldman Sachs Group, Inc. and Morgan Stanley received the largest shares of the fee pool, each receiving about $100 million. Bank of America Corp, Citigroup, and JPMorgan received smaller roles in this offering and received $75 million each. For the more than a dozen banks acting as joint underwriters, the fee was reduced to about $2 million per bank. Wall Street's "greenshoe show": Musk promotes with a photo, investment bank CEOs collectively wear green shoes The day after SpaceX went public, Musk marked the record-breaking transaction in his own unique way. According to reports, to celebrate the moment, Musk went the extra mile, asking bankers from Goldman Sachs Group, Inc. and Morgan Stanley to wear real green sneakers on Friday. The new trillionaire then posted a photo of top executives from Morgan Stanley, including CEO Ted Pick and Musks "personal advisor" Michael Grams, all showing off their green kicks. This image perfectly integrated Wall Street's traditionally serious investment banking culture with Musk's signature playful style - giving the financial term "greenshoe" a double meaning. In fact, the pricing mechanism for SpaceX's IPO was quite rare. Unlike conventional IPOs that set price ranges and determine final offering prices based on market inquiry, SpaceX adopted a fixed pricing approach, offering investors only the choice to accept or reject. According to media reports, SpaceX's IPO received over four times oversubscription, with total subscriptions exceeding $250 billion, far surpassing the $750 billion fundraising target. Sources revealed that due to overwhelming demand, underwriters stopped accepting institutional orders in New York right after the close of business on Wednesday afternoon. Musk's wealth surpassing the trillion mark, becoming the first "trillionaire" in human history With SpaceX's listing, Musk's personal fortune officially crossed the trillion-dollar mark, making him the first "trillionaire" in human history. Musk holds approximately 38% to 42% of SpaceX's shares, and based on a $1.75 trillion valuation, this stake alone is close to $870 billion, in addition to his stake in Tesla, Inc. of over $260 billion, making his total wealth surpassing the ten-trillion-dollar threshold for the first time. According to calculations based on company documents, when SpaceX shares start trading, Musk's net worth, including Tesla, Inc. and other assets, will exceed $1.1 trillion. However, Musk himself responded to questions about his wealth on the X social platform in February of this year, writing that his "net worth is almost entirely from holdings in Tesla, Inc. and SpaceX, with cash representing less than 0.1%," and his wealth is a prepayment by the market on his future capabilities, highly concentrated, not easily liquidated, and subject to violent fluctuations in stock prices. SpaceX's listing also creates wealth on a massive scale within the company. This IPO is expected to create around 4,400 new millionaires among SpaceX employees, with about 400 current and former employees holding stock values reaching or exceeding $100 million. J.P. Morgan has upgraded Goldman Sachs Group, Inc. and Morgan Stanley to tactical overweight, stating that the market undervalues the revenue multiplier effect brought by the $750 billion SpaceX IPO. Analysts expect a 21% year-over-year increase in stock trading revenue in the second quarter. Goldman Sachs Group, Inc. is set to release its earnings on July 15, while Morgan Stanley will release its on July 16. The market will closely monitor the substantial contribution of the SpaceX IPO to investment bank revenue. In Musk's own words, everything he does is to make humanity a multiplanetary species. However, for Wall Street investors, the logic behind this transaction may be more straightforward: they are buying into Starlink's cash flow and Musk's long-term narrative of betting on "orbital data centers." The other side of the heated demand: SpaceX options expected to see significant trading when they begin trading in the next few days Investors will soon have a new way to bet on SpaceX's future development: the company's stock options will start trading on Tuesday, with initial trading expected to be active, volatile, and likely at high prices. Options trading for this rocket and spacecraft manufacturer owned by Elon Musk will follow shortly after the company's stock set a trading record last Friday, attracting a wave of investors. A Cboe Global Markets Inc spokesperson stated that options trading is expected to begin next Tuesday. Market participants anticipate that after options trading commences, a variety of investors, including shareholders seeking downside protection and traders betting on stock volatility, will participate. "I expect demand to explode," said Ophir Gottlieb, CEO of Capital Market Labs. "This is the largest IPO in history, the founder is one of the most controversial figures in history, and what he is pursuing may be one of the most ambitious long-term goals in history, resulting in the largest initial options trading volume (in dollars) in history." Options grant holders the right but not the obligation to buy or sell stocks at a predetermined price within a specified period, providing investors with a low-cost way to gain exposure to a company's stock and express their views on short-term price movements and long-term positions. They typically begin trading in the days following a stock's initial public offering. Expected significant volatility If SpaceX's stock price behaves similarly to Tesla, Inc.'s stock price movement, its volatility will be higher than regular stocks, driving options trading activity. According to data from the London Stock Exchange Group (LSEG), Tesla, Inc.'s five-year beta coefficient (a measure of volatility) is 1.81, where 1 indicates a stock's volatility is in line with the market. "I think we will see significant volatility in the underlying stock," said Seth Hickle, Chief Investment Officer at Mindset Wealth Management, adding that the implied volatility of options may be "very high." Investors expect that SpaceX's first quarterly report after going public and key events such as potential inclusion in major stock indices will drive market activity. Nasdaq has adjusted rules to simplify SpaceX's entry into the Nasdaq 100 index. MSCI has stated that it will adopt a pre-inclusion rule for large IPOs, while S&P Global, Inc. has mentioned the possibility of excluding rapid inclusion in the S&P 500 index. "We've been asked more times 'when will options start trading?' for this IPO than any I can remember," said Chris Murphy, co-head of derivatives strategy at market maker Susquehanna. Doubters can also use options to express bearish views without bearing the risk of directly shorting SpaceX stock, although it can be costly to do so. "Shorting involves theoretically infinite risk, borrowing costs can be high, and in exchanges with limited shares like SPCX, short squeezes may wipe you out before your fundamental judgment is correct," said Luke Lango, Chief Technical Analyst at financial research firm InvestorPlace.