Wall Street races to sell SpaceX-linked products as stock sinks

Wall Street is racing to roll out complex investment products tied to SpaceX shares that aim to shield buyers from future losses amid a sharp selloff following its market debut.

At least five financial firms, including Morgan Stanley and Marex Group, are seeking to offer SpaceX-linked structured notes that limit downside — in some cases protecting against declines of as much as 50% — while capping gains over the coming months or years, according to regulatory filings.

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From options to leveraged exchange-traded funds, Wall Street has built an entire ecosystem of investments around Elon Musk’s rocket, satellite and AI conglomerate since its June initial public offering.

With the stock down more than 40% from its post-listing peak amid frenzied trading and sharp price swings, more firms are likely to follow suit, according to Aaron Brachman, executive managing director at the Washington Wealth Group of Steward Partners.

“As the options market continues to get more liquid around any new issue stock, the more likely it is that other banks will feel comfortable pricing the risk associated with it,” he said. “The more volatile something is and the more it captures the public’s interest, the more likely it is that notes will be created for it.”

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The offerings are the latest example of Wall Street capitalising on a hot stock to introduce new products, many of which come with hefty fees.

Blending fixed-income characteristics with derivatives, structured notes function as debt-like securities that provide enhanced payouts compared to standard bonds. They are most commonly sought by high-net-worth individuals, family offices and discretionary managers looking for customised risk profiles in their investment portfolios.

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“This was among the fastest structured product launches tied to a new security,” said Sarah Laconte, director of US structured product sales at Marex. “The appetite for stock underliers, volatility and AI related trades is commonplace within the structured-note ecosystem.”

Marex is offering a note due in nine months that can be redeemed, or called, automatically, with the principal returned in full should SpaceX’s stock close on predetermined dates at or above its initial value. As long as the note is active, investors are promised monthly interest of at least 1.8% regardless of how the stock performs. Upon maturity, investors will be protected against declines of as much as 35%, but will face the full downside if the stock falls beyond that point.

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At Morgan Stanley, a note is designed to offer a fixed payout of 40% as long as SpaceX shares are flat or up at maturity in early 2028. That payout also applies when the stock is down by less than 50%, but for any drop beyond that threshold, note holders are fully exposed to the downside.

Other firms seeking to provide SpaceX-linked structured notes include Citigroup, Wells Fargo & Co and RBC Capital Markets. Earlier, GraniteShares filed to sell an autocallable ETF tied to the company.

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Brachman at Steward Partners isn’t a fan of single-stock structured notes because of what he calls “the inverse of risk and reward.”

“They cap your upside on highly volatile companies but often give you unlimited downside” once the protection threshold is breached, he said. “It’s like, why not just buy the stock in that instance?”

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