Rapid Unscheduled Devaluation: The geometry of the SpaceX IPO

Today is SpaceX’s initial public offering (IPO) on Nasdaq under the ticker SPCX. The company is offering 555.6 million shares at a fixed price of $135, raising $75 billion and targeting a valuation of $1.77 trillion. This is the largest IPO in history, by a large margin. All for a company that lost nearly $5 billion last year. Institutional interest in SpaceX is high, as the offer was oversubscribed. That is to say, there is more demand for stock among financial institutions than there is stock being issued. A lot of this excitement is because there will be suckers passive investors to sell these shares to after SpaceX’s IPO. To understand why passive investors are about to get exposure to a company that specializes in rapid unscheduled disassembly (their own words), it’s critical to know what it means to be included in an index and how funds interact with indexes.We’ll talk about these concepts later in the post, but the short story is that SpaceX has benefited from rule changes that…