911 million SpaceX shares unlocked today and everybody is freaking out.
It’s all BS.
Let me walk you through why, because I’ve been on the inside of one of these and I know how it works.
When SpaceX went public, 95% of the stock stayed with insiders and in the treasury. Only a small portion of the company floats. So the media looks at 911 million shares hitting the first tranche and tells everybody the sky is falling.
This was not the first time those people could sell.
Months before the IPO, SpaceX gave insiders who wanted liquidity a chance to sell some shares privately. I went and confirmed it. If you owned 50,000 shares and wanted to unload 5,000 to a private equity firm, they allowed it.
Not many people took it. They pay pretty well at SpaceX.
Second thing. When you own tens of thousands of shares of a company, they don’t sit in your ThinkOrSwim account waiting for you to click sell. A lot of it is restricted stock, held in street name, and you can’t just fire off covered calls against it either.
Third, you don’t sell the stock at all. You borrow against it.
If you own 20 million dollars of SpaceX, you throw it over to Bank of America Private Wealth and they will lend you 10 million against it without batting an eye. They hold the shares. You get the cash.
The rate is usually prime plus a percent, so call it 7% to 8% right now. That’s not far off a jumbo mortgage. It’s effectively the same thing.
Then there is the tax. Most of these people still live out in Fremont, and California taxes are out-freaking-rageous. Between long term gains and state, you are handing over somewhere in the 20% to 25% range.
Now put yourself in their seat.
This thing came public at 135, ran to 225, and it’s sitting near 109 right now. If you held 20 million in shares, you watched it become 45 million and come back to 20.
Nobody in that position is selling down here. You’ve held them this long. You tell yourself it gets back there, and you go to bed.
I know because I did it. My deal at ThinkOrSwim was mostly in cash, but a lot of my friends had tens of millions in shares, and one of our deals closed in 2007. Then 2008 hit and the stock spiraled for no reason other than that it was a financial.
It’s tough to go to sleep when the thing is down three bucks in a day and you just watched four or five hundred thousand dollars evaporate.
The only thing that kept me sane was standing next to Tom Sosnoff and doing the math. If I’m losing a couple hundred thousand, he’s got to be losing thirty or forty million. He’s not freaking out, so I’m fine.
When crap is hitting the fan, find a trader bigger than you and go stand next to him.
I sold puts naked at the 105 strike in SpaceX today.
I did that because I’ll take the stock at 105. I didn’t want it at the IPO price and I was happy for the people who got it at 135, but it’s 109 now and I’m fine owning a few hundred shares down here.
The stock is up a buck and change on the day everybody told you it was going to collapse.
Calm down.
To your success,
Don Kaufman
P.S. Believe it or not, give me 60 seconds and I’ll make you a better trader. I know a big claim, but for a limited time you can test me out, risk free.
