rewrite this title ‘Passive’ investors who dodged bitcoin are now forced to own SpaceX, which is three times more volatile

In many ways, SpaceX is a lot like bitcoin: it has no earnings, no yield, is so far extremely volatile, and has about as many haters as it does hardcore believers. 

One big difference: no one’s forcing you to own bitcoin.

In the case of SpaceX, it sure feels like the opposite for many advisors and money-managers invested in index funds who will soon be owners of Elon Musk’s astronomic ambitions when the stock is integrated this summer into some of the biggest exchange-traded-funds that are staples of most American’s portfolios.

“Vanguard and other large money managers who are going along with Nasdaq’s mandate and rule change are betraying U.S. savers,” said Ayman Saidi, partner at Strategic Investment Solutions, an Orland Park, Illinois-based RIA. “VUG in my portfolios will likely own SpaceX soon. This is why I like Dimensional Funds: they do not simply copy an index. It will be a major market distortion.”

‘VUG’ is the Vanguard Growth Index Fund ETF.

CRSP market indexes, Nasdaq, FTSE Russell, and MSCI have all made accommodations to integrate SpaceX within their large-cap trackers. Given SpaceX’s monstrous $2.7 trillion market cap – the fifth biggest company in the world after Tuesday’s 4.5% rally – it’s likely to raise index-level volatility.

“Fast-track rules for Vanguard funds tied to CRSP indexes have been in place since 2013. CRSP made a small adjustment this year to allow large companies with lower float to qualify under the fast track rule,” said Rodney Comegys, CIO and head of global equity at Vanguard Capital Management, said in an email. “Vanguard believes indexes should incorporate IPOs based on what is truly available to investors.”

SpaceX implied volatility was almost 120 Tuesday, about three times higher than the iShares bitcoin ETF (IBIT). The stock would be the most volatile in the S&P 500 and Nasdaq 100 as of Tuesday’s trading – as well as the only trillion-dollar-plus market-cap company that doesn’t make money.

That means its inclusion won’t go unnoticed, compared to say, when Strategy was added to the Nasdaq 100 in December 2024, when it was trading under a $100 billion market cap.

“At this point, if you’re allergic to volatility, you might just want to be in bonds,” said Kevin Kelly, co-founder of Delphi Digital, a research firm formed by ex-Bloomberg analysts in 2018. “AI has captivated a lot of the speculative audience and some of these AI stocks look like early token charts. Plus, SpaceX is so polarizing, there are people in the more traditional sell-side camp that couldn’t even get past this if it IPO’d at $600-or-700 billion.”

Investors who aren’t looking forward to the SpaceX ride may find comfort in the idea that the volatility might be short-lived. Implied volatility in SpaceX options does start to slip more than similarly volatile stocks like Micron in later-dated contracts that stretch beyond the lockup period for insiders. 

Trading as part of the index might also help smooth out currently elevated volatility, according to Noel Smith, CIO and founder of Convex Asset Management. 

“Going in the index will reduce SpaceX vol – no way it stays at 120,” Smith said in a text. “HFTs constantly rebalancing, passive flows that don’t sell, there’s way more liquidity.”