Options Traders Gamble On Virgin Galactic's Planned Space Flight

Virgin Galactic Holdings, Inc SPCE is set to fly its first civilian to space on Sunday, and not just any civilian. Sir Richard Branson is looking to make headlines by beating Jeff Bezos to the edge of the Earth’s atmosphere.

There is some debate as to whether Virgin Galactic is technically flying to space. According to Switzerland’s The Fédération Aéronautique Internationale, the atmosphere ends and space begins roughly 62 miles above Earth’s mean sea level at what is known as Kármán line.

On May 22, when Virgin Galactic completed its last successful test flight, its spaceship reached a distance of 55.5 miles.

It will be interesting to see whether Virgin Galactic can fly a further 6.5 miles on Sunday’s trip. If not, Bezos may deem himself the space race winner.

The Risks: Whether Branson and his fully crewed ship make it to Kármán line isn’t the only variable in whether Virgin Galactic’s stock reacts bullishly or bearishly following the flight.

Playing the market on a news event is often a gamble and options trader’s need to consider the following possibilities:

• If the flight is unsuccessful, or is canceled, Virgin Galactic’s stock could drop drastically. This scenario played out when Virgin Galactic canceled its test flight scheduled for Feb. 13 and the stock fell 76% in the three months that followed.
• A stock running up into a known event can drop following the news, even if the news is positive. Virgin Galactic’s stock ran about 17% higher on Thursday, although it was pinned around the $50 mark on Friday.
• Institutions writing the options contracts jack the price, called premiums, of the calls and puts higher when a known event is imminent. After the event occurs, the institutions then drop the price of the contracts so that, even if the stock moves a certain percentage in either direction, the contracts won’t gain value and the value may even drop.

Despite the risks, options traders piled into Virgin Galactic on Thursday to place their bets on how the stock will react in the days following Sunday’s flight.

On Friday, traders hit the calls and puts again, with bullish options traders betting over $1.17 million Virgin Galactic’s stock will skyrocket higher and the bears betting $798,554 it falls.

The following option trades have been filtered to only include contracts purchased with an expiry of July 16 or later to gauge trader sentiment for the stock’s movement following the flight.

See Also: Is Now The Time To Buy Into Alibaba, Virgin Galactic, Or GameStop Stock?

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call or put option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of call option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

The Bullish Virgin Galactic Option Trades: Below is a look at the notable options alerts courtesy of Benzinga Pro:

• At 10:18 a.m. Friday, a trader executed a call sweep near the ask of 264 Virgin Galactic options with a strike price of $70 expiring on July 16. The trade represented a $70,224 bullish bet for which the trader paid $2.66 per option contract.
• At 11:11 a.m., a trader executed a call sweep near the ask of 200 Virgin Galactic options with a strike price of $50 expiring on July 16. The trade represented a $131,000 bullish bet for which the trader paid $6.55 per option contract.
• At 11:35 a.m., a trader executed a call sweep near the ask of 207 Virgin Galactic options with a strike price of $51 expiring on July 23. The trade represented a $159,183 bullish bet for which the trader paid $7.69 per option contract.
• At 11:35 a.m., a trader executed a call sweep near the ask of 246 Virgin Galactic options with a strike price of $50 expiring on July 16. The trade represented a $158,670 bullish bet for which the trader paid $6.45 per option contract.
• At 11:35 a.m., a trader executed a call sweep near the ask of 272 Virgin Galactic options with a strike price of $110 expiring on Oct. 15. The trade represented a $99,280 bullish bet for which the trader paid $3.65 per option contract.
• At 12:22 p.m., a trader executed a call sweep near the ask of 600 Virgin Galactic options with a strike price of $60 expiring on July 16. The trade represented a $159,183 bullish bet for which the trader paid $3.90 per option contract.
• At 12:16 p.m., a trader executed a call sweep above ask of 311 Virgin Galactic options with a strike price of $55 expiring on July 16. The trade represented a $164,830 bullish bet for which the trader paid $5.30 per option contract.
• At 12:16 p.m., a trader executed a call sweep near the ask of 300 Virgin Galactic options with a strike price of $55 expiring on July 16. The trade represented a $159,183 bullish bet for which the trader paid $5.44 per option contract.

The Bearish Virgin Galactic Option Trades: Below is a look at the notable options alerts.

• At 11:23 a.m., a trader executed a put sweep near the ask of 417 Virgin Galactic options with a strike price of $48 expiring on Jan. 21, 2022. The trade represented a $612,990 bearish bet for which the trader paid $14.70 per option contract.
• At 11:33 a.m., a trader executed a put sweep near the ask of 732 Virgin Galactic options with a strike price of $30 expiring on July 16. The trade represented a $38,064 bearish bet for which the trader paid 52 cents per option contract.
• At 1:12 p.m., a trader executed a put sweep near the ask of 236 Virgin Galactic options with a strike price of $48 expiring on July 23. The trade represented a $147,500 bearish bet for which the trader paid $6.25 per option contract.

SPCE Price Action: Virgin Galactic shares lost 6.75% Friday, closing at $49.20.

Photo: a Virgin Galactic SpaceShip. Courtesy photo.