Investment analysis by Ruslan Averin — originally published at averin.com.
SPCX options opened for trading this week, and the first thing I did was not place a trade. I pulled up the chain and just looked at the prices. They are enormous. A put 10% out of the money is trading for money that, on a seasoned large-cap, would only exist a few days before earnings. That is not a glitch. It is the single most exploitable condition in options, and the bull put spread is the safest tool I know to harvest it.
Let me explain why the premium is this fat, and then exactly how I sell it without ever risking more than a number I decide in advance.
Why a brand-new chain prints the richest premium you will ever see
Implied volatility is the market's price for uncertainty. When market makers quote options on a stock that has traded for years, they lean on a long history of how that stock actually moves — its realized volatility, its earnings reactions, its behavior in a sell-off. They have a map.
On SPCX they have nothing. The stock IPO'd at 135, closed its first day near 161, and ripped roughly 20% in its first real week. Early sessions swung between the high 190s and 225 intraday. There is no positioning history, no seasoned options flow, and a relatively small tradable float. A market maker who has to quote a two-sided market into that fog does the only rational thing: he prices maximum uncertainty. Implied volatility on the front-month SPCX chain is sitting in triple digits.
That is the seller's moment. When IV is priced for chaos, the person selling the option is being overpaid for risk. The person buying it is paying a tax. I want to be the seller — but I want to be the seller with a seatbelt on.
The structure: a put credit spread, risk defined to the dollar
A bull put spread (also called a put credit spread) is two legs placed at the same time:
- Sell one out-of-the-money put — this is the premium I collect.
- Buy one further-out-of-the-money put — this is my insurance.
With SPCX trading around 190, here is the exact trade I would structure:
| Leg | Action | Strike | Approx. price |
|---|---|---|---|
| Short put | Sell | 170 | collect ~7.50 |
| Long put | Buy | 155 | pay ~1.00 |
| Net credit | ~6.50 (650 dollars) |
The spread is 15 points wide (170 minus 155). My math is fixed the instant I open it:
- Maximum profit: the credit, 650 dollars per spread. I keep it all if SPCX is above 170 at expiration.
- Maximum loss: width minus credit, (15.00 minus 6.50) x 100 = 850 dollars per spread. That is the worst case even if SpaceX goes to zero overnight.
- Breakeven: 170 minus 6.50 = 163.50. The stock can fall 14% from 190 and I still do not lose a cent.
That last line is the whole point. I am not predicting SPCX goes up. I am getting paid a large premium to bet it does not collapse below 163.50 in the next month. Given the stock just IPO'd at 135 and the long put at 155 caps my downside, that is a wide margin of safety bought cheaply by the fat IV.
Why "defined risk" is non-negotiable on a fresh listing
You could collect even more premium by selling that 170 put naked — no long put underneath it. Do not do this on a new IPO. A stock with no trading history and a thin float can gap. If SpaceX printed bad news pre-market and opened at 120, a naked short 170 put would be a 5,000-dollar-per-contract loss with no floor. The 155 long put turns that nightmare into a known, survivable 850 dollars. The few hundred dollars of premium I give up to buy that put is the cheapest insurance I will ever purchase. On a seasoned, liquid name I sometimes sell naked puts. On a one-week-old ticker with triple-digit IV, never.
How I actually place and manage it
Expiration: I sell the spread at roughly 30 to 45 days to expiration. That window sits in the steepest part of the time-decay curve, so the premium erodes in my favor fastest, and it gives me room to manage if the stock moves.
Order entry: the bid-ask spreads on this chain are wide because the options are new and illiquid. I never pay the market. I route the spread as a single combo order with a limit price near the mid, and I am patient. On a 6.50 theoretical credit I will start my limit at 6.80 and work down. Crossing a wide spread on entry can quietly cost more than my edge.
Taking profit: I close at 50% of max profit. When that 650-dollar credit has decayed to about 325 dollars of remaining value, I buy the spread back and book the win. I do not hold defined-risk credit spreads to expiration hunting the last few dollars — the risk-to-reward at the end is terrible.
Sizing: this is where most people blow up a good idea. The premium is so tempting they sell ten spreads. I size so that the total defined loss across every SPCX spread I hold is a small, pre-decided fraction of the account — the kind of number that, if it goes to maximum loss tomorrow, I shrug. One or two spreads to start. The fat premium does not change the rule; it tempts you to break it.
The catalyst on the horizon
SpaceX reports its first earnings as a public company in November. Until then, IV will stay elevated and bid — the market will not let this premium deflate while a giant unknown sits on the calendar. That is good for a premium seller in the near term, but it is also why I keep my expirations in front of that event, not across it. I do not want to be short a spread through SpaceX's first earnings print as a public company, when the move could be violent in either direction. Sell the fear in the calm weeks; flatten before the binary.
Bottom line
A fresh listing with no IV history is the richest premium-selling environment that exists, and it is also where undefined risk gets people killed. The bull put spread squares that circle: I collect the inflated premium, I cap my loss at a number I choose, and I get a 14% downside cushion for free. Sell the fear, define the risk, size it small.
This is not advice and not a recommendation — it is how I, Ruslan Averin, think about a setup like this, recorded at averin.com.
— Ruslan Averin
More market analysis by Ruslan Averin at averin.com.
