The Significance of a Fast-Track Inclusion
Next week marks the debut of SpaceX officially joining the NASDAQ 100. The company is entering through a fast-track inclusion process, a mechanism that reflects a broader reality: markets constantly change, and broad-based benchmarks must be updated to mirror the economy we actually live in today rather than the one of years past.
How significant is it to get a name like SpaceX into the index this quickly, and what does it say about how fast mega caps are becoming index heavyweights? The impact of any single name on the index is relatively small — and in SpaceX's case, even smaller because of an adjustment made for the company's low float. What actual effect the inclusion will have going forward is genuinely unknown. But there is important historical precedent worth pointing out.
Tesla serves as a useful proxy. Tesla joined the NASDAQ 100 in July of 2013, but it was not added to the S&P 500 until December of 2020. That is a striking gap. During those intervening years, Tesla's market capitalization grew from roughly $20 billion to close to $600 billion. This is a concrete example of how the NASDAQ 100 has historically captured growth that other benchmarks did not reflect until much later. As for SpaceX specifically, no one knows exactly how it will shake out — it is coming public at a much higher valuation than we've seen in prior inclusions. The reasonable expectation, and arguably what the market is already positioning for, is slightly higher index volatility relative to alternatives.
What Historically Happens When a Name Joins the NASDAQ 100
When new names are added to the NASDAQ 100, how has that historically changed their performance going forward — the day after, the following weeks, the month after, the year after? The honest answer is that it depends heavily on the case and is far easier to judge in hindsight. The Tesla example was deliberately chosen precisely because there were seven years of data to look at.
More systematic work on this question, drawing on an analysis of the telegraphed, non-adjustment additions to the NASDAQ 100 going back about four years, offers a clearer pattern. Across roughly 35 different names, two observations stand out:
- On the day of addition (which, for SpaceX, will be Tuesday), performance is relatively muted. By and large, on the day of addition, the added names have actually moved lower, with only a handful of outperformers. This does not necessarily predict anything for SpaceX on Tuesday.
- Five trading days after inclusion, the picture is similarly unremarkable for most. One of the most recent notable examples was Walmart, which was a big mover late last year.
The key takeaway is that these inclusions are telegraphed well in advance. The market is fully aware of what is coming, and as an index provider that transparency matters. For most names, the meaningful price move occurs in advance of the actual addition, and then the inclusion simply becomes the new normal. That is the expectation for SpaceX next week and beyond.
SpaceX Options: A Rally, Wild Volatility, and Rapid Normalization
Following SpaceX's IPO, there was an enormous rally, wild action in options trading, and elevated volatility across the spectrum — both in SpaceX itself and in the broader space economy. Yet the options market has calmed considerably since then, and in a remarkably short amount of time.
What does that normalization in implied volatility tell us about how the market views SpaceX ahead of its inclusion? It reflects a couple of things.
First, options provide alternative exposure to names that have captured the market's attention. If an investor was not part of the IPO allocation, that is fine — they can use flexible options tools to gain exposure, whether their interest is in the next couple of days or years out in time. The demand for this is clearly evident: on average, at least 1.5 million SpaceX options trade in a day, placing SpaceX among the most active single-name securities in the market.
Second, the rapid normalization of volatility is a testament to the breadth and sophistication of liquidity providers and the broad ecosystem in which risk is managed. Large banks and market makers generally think about risk at the index level, managing constituent names within that framework. As a result, risk gets diffused throughout the system. Whether or not a given participant is specifically interested in SpaceX, that risk is recycled and the market continues to move on. This is why the initial volatility spike settled so quickly.
An Exceptional Second Quarter for the NASDAQ 100
The NASDAQ 100 delivered an exceptional second quarter — its strongest performance since the post-pandemic rebound, and a clear outperformance of the S&P 500.
What was driving that? Putting numbers around it: in the Q2 that just ended, the NASDAQ 100 rose about 27%, compared with roughly 15% for the S&P 500. That is a 10% — or thousand basis point — outperformance, which is very significant.
The big drivers, in terms of contribution to return, were exactly the names that have drawn heavy attention in recent months and that carry slightly higher weights in the NASDAQ 100 than in the S&P 500. These include Micron, AMD, and other technology names. Both indices hold these names, but the NASDAQ 100 holds them at higher exposure, which magnified their impact.
This reinforces a broader point: the index is arguably becoming the best reflection of the economy in front of us and the way things actually work. One additional driver was a rebound in software following the "SaaS apocalypse" event earlier in the year. Software bounced back in Q2, helping bolster both indices — but again, on a relative basis, the NASDAQ 100 benefited more meaningfully.
Broadening Participation Despite a Semi-Driven Story
Semiconductors are a huge part of this story, and given the concentration of leadership in those names, a natural question arises. Even though the market remains very semi-driven, is participation beginning to broaden?
The answer depends on what is meant by participation, but as it pertains to the investing public, the answer is unequivocally yes. Looking at the options markets, the growth in NASDAQ 100 activity relative to other indices has been very significant. In terms of average daily volume, NASDAQ 100 options are up roughly fourfold, over a period in which the comparable S&P benchmark probably only doubled.
This signals two things. First, the investing public is actively seeking exposure to the NASDAQ 100. Second, investors increasingly understand that their passive long positions are, in effect, looking more and more like the NASDAQ 100 — and they are learning to manage that exposure using index options. This trend is not expected to change in the near future.
A Warning Sign: Surging Demand for Downside Protection
The most interesting data point of the week concerns a notable shift: investors now appear to be seeking considerably more downside protection — and paying a premium for it — in the NASDAQ 100 relative to the S&P 500.
What is that telling us about sentiment right now? Using the familiar analogy of options as insurance: looking at one-month, 25-delta puts in implied volatility terms, the NASDAQ 100 typically commands a slightly higher premium than the S&P 500 to underwrite risk. That much is normal. What is unusual is that this relative premium — the spread between the two — has become much higher than usual.
To find a comparable spread, you have to go all the way back to the 2020 rebound from the pandemic, and before that to 2007. Without being alarmist, it is simply uncommon to see a spread this considerable in one-month downside risk, and both of those reference years — 2007 and 2020 — are periods most investors would prefer not to revisit.
The interpretation is that there is significant demand for protection, and particularly for protection on exposures tied to the semiconductor and memory names that have moved up significantly over the past couple of months. There is a flip side, however. For an investor looking to underwrite (sell) risk rather than buy protection, this elevated premium means they may now be getting paid a sufficient premium on a like-for-like basis to do so — meaningfully more than they typically would earn to underwrite downside in the NASDAQ 100. This is not an endorsement of any specific trade, but on a relative basis, the compensation for selling downside protection in the NASDAQ 100 is currently well above normal. Whether that ultimately works out will only be revealed in the coming weeks and months.
Key Takeaways
- SpaceX's fast-track entry into the NASDAQ 100 reflects the index's ongoing effort to mirror the modern economy; the direct impact of a single low-float name is small, but Tesla's history shows the NASDAQ 100 tends to capture growth earlier than other benchmarks.
- Index inclusions are telegraphed, so most of the associated price move happens before the addition date; on the day itself, added names have historically tended to drift slightly lower before settling into a new normal.
- SpaceX options are already among the most actively traded single names (1.5 million-plus contracts daily), and their volatility normalized quickly thanks to a deep, sophisticated liquidity ecosystem that diffuses risk at the index level.
- The NASDAQ 100 posted its best quarter since the post-pandemic rebound (up ~27% vs. ~15% for the S&P 500), led by higher-weighted names like Micron and AMD, plus a software recovery.
- Participation is broadening in the options market, with NASDAQ 100 option volumes up roughly fourfold, as investors increasingly hedge portfolios that now resemble the index.
- An unusually wide spread in demand for one-month downside protection — last seen in 2020 and 2007 — signals heightened caution, especially around semiconductor and memory names, while also offering elevated premiums to those willing to sell that protection.
