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Virgin Galactic’s stock frenzy is starting to look a little like Tesla’s run

Virgin Galactic
Virgin Galactic’s space plane before reaching space for the first time during its fourth powered flight from Mojave in 2018.
(Matt Hartman / Associated Press)

A seven-day surge in Virgin Galactic Holdings Inc. has lifted the stock four times above its level in December. Gains are snowballing, options traders are piling in, chatrooms are lighting up. It’s all starting to look similar to another space-age growth stock’s recent run.

Though the company is just a fraction of Tesla Inc. in terms of market value, the frenzy surrounding its shares is similar. The average daily increase in Virgin’s share price is more than 9% since Feb. 10.

Virgin Galactic options activity has kept pace with the stock’s meteoric push and may even be fueling it. As of 2:20 p.m. Tuesday in New York, call volume exceeded 360,000 contracts, which dwarfs the previous record set Friday. The stock closed, up 5.7% on Tuesday, at $30.30. The share price is up 162% for the year so far.

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Derivatives that can extract even more gains from Virgin Galactic have become a favorite among retail investors, judging by activity on message boards like r/wallstreetbets. When a fresh option is written, dealers who sell it will typically hedge their exposure by buying a certain amount of the stock so as not to accumulate a short position and will tend to buy more shares in the event of a continued rally. Some traders have seized on this dynamic as evidence that their options-buying activity is sufficient to perpetuate a rally in the underlying stock.

The recent activity is reminiscent of the euphoria that overtook trading in Tesla just a few weeks ago when FOMO, or fear of missing out, trading in the electric-car manufacturer overtook Google searches. While Virgin Galactic has yet to reach that level of retail excitement, more than 103 million shares traded hands Tuesday. That dwarfs the activity seen in Tesla.

Even with the stock’s parabolic rise, bears have continued to pile in with more than 30% of shares available for trading currently sold short, according to data compiled by S3 Partners. Bets that Richard Branson’s space-tourism company company goes bust stand in stark contrast to the market’s recent realization that wagering against Elon Musk and Tesla hasn’t panned out. Roughly 15% of Tesla shares available for trading are currently short, the lowest level in at least a year, data from S3 show.

Morgan Stanley analyst Adam Jonas offered a warning to investors chasing the rally that recent gains appear “to be driven by forces beyond fundamental factors.” Branson’s Virgin Galactic and Musk’s SpaceX as well as Blue Origin, Jeff Bezos’ rocket company, are racing to make space tourism a reality.


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