A Hidden Trade Around SpaceX IPO?
How hedge funds may already be positioning ahead of the event
The piece we present today stems from some internal exchange within the Concretum team ahead of the highly anticipated SpaceX IPO, an offering that has dominated headlines for a string of firsts in recent market history, from its record valuation (~$1.75 trillion) to the one that interests us most: the prospect of a “fast-track” inclusion into the Nasdaq 100.
A few numbers can frame why this event is essentially unprecedented. Despite being the largest IPO in history, only ~3–5% of SpaceX’s market capitalization will actually trade: a float that under the old rules would have kept it out of the major benchmarks, but Nasdaq and FTSE Russell amended their methodologies this year precisely to handle such cases.
Interestingly, S&P Dow Jones index provider recently rejected the proposed fast-track mechanism, given that SpaceX currently does not satisfy their inclusion rules and profitability requirement, thereby deferring S&P-linked flows to 2027 at the earliest.
Under Nasdaq’s updated rules, SpaceX could join just 15 trading days after its IPO, triggering an estimated $22–27 billion of mechanical buying from Nasdaq 100 and Russell indexes combined.
Drawing on the literature on the behavior of stocks before (and after) index-inclusion events, and on the more recent work on demand-system asset pricing, we were curious to see whether (and how) hedge funds and other sophisticated market participants might have positioned ahead of this meaningful event.
What we found surprised us.
Using a simple framework designed to estimate which Nasdaq-100 constituents should be most exposed to the potential rebalancing flows, we observe a remarkably strong divergence in performance emerging almost immediately after the fast-track announcement.
While alternative explanations certainly exist, the pattern is difficult to ignore and appears broadly consistent with the footprint one might expect from sophisticated investors positioning ahead of the event.
Literature Review
Overall, academia points to a clear index-inclusion effect: stocks that are known to be entering an index experience positive abnormal returns in the days leading up to the event.
The canonical reference is The Index Premium and its Hidden Cost for Index Funds (Petajisto, 2011), which studies all S&P 500 and Russell 2000 index changes from 1990 to 2005 and finds that “the price impact from announcement to effective day has averaged +8.8%” for S&P 500 additions (+4.7% for Russell 2000 additions), while S&P 500 deletions returned -15.1%.
Interestingly, the effect is not directly attributed just to the ETFs that ultimately have to purchase the shares. Passive trackers concentrate their buying (and selling) as closely as possible to the moment the new stock effectively enters the index: their mandate is, essentially, index replication, and rebalancing early would generate tracking error, given that in the run-up to inclusion the entrant is technically not yet part of the benchmark.
Instead, the price pressure hypothetically comes from hedge funds, arbitrageurs, and other sophisticated participants who, anticipating the passive trackers’ demand, collectively buy the entrant ahead of time. Beneish and Whaley (1996) named the strategy the “S&P Game”, and Petajisto describes its mechanics in detail: the arbitrage activity consists of anticipating index changes “days or even months earlier, buying the additions and then selling the entire position to index funds on the effective day”.
At this point, it is worth pausing on why an index inclusion moves prices at all.
Nobody in this trade is acting on news about the company: trackers buy because the index changed, and arbitrageurs buy because the trackers will have to. Under the Efficient Market Hypothesis (EMH), such uninformed buying should be absorbed by the market without leaving a mark, but the presence of the inclusion effect shows that it is not.
When enough money has to buy one specific stock, its price moves: in the language of academia, demand curves for stocks are not flat. Flows alone, even entirely uninformed ones, can move prices.
This is the observation that the demand-system asset pricing literature has made more general and measurable. For instance, Barbon (CEO of Concretum Group) and Gianinazzi (2019) study the Bank of Japan’s index-linked ETF purchases (an enormous and information-free flow) and identify “a positive and persistent impact on stock prices”, with “no evidence of reversal over a 1-year window”.
For our purposes, this generalization is an important step.
The shares sold by the trackers do not “disappear”, as they must be absorbed by other investors. But while index trackers hold these stocks by mandate (a price-insensitive demand) the buyers stepping in to absorb the flow have no such strong preference for them: these investors shall therefore demand a higher expected return, which means their prices are expected to fall.
The index-inclusion literature largely focuses on one side of the event, namely the stock being added to the index. Yet if prices respond to mechanical flows wherever they occur, the same logic should apply, with the sign reversed, to the stocks that must be sold to make room for the new entrant.
A Hidden Trade?
SpaceX, if added through the fast-entry mechanism, would command a non-marginal weight in the Nasdaq 100 from day one: and since the new methodology allows for a new addition without forcibly removing another name, that weight must be funded by trackers selling down every other constituent.
For reference, JPMorgan strategists estimate that if half of SpaceX’s shares were to float at a $2 trillion valuation, passive funds may need to sell about $95 billion of the eight largest tech stocks alone to rebalance their portfolios.
Is it possible that hedge funds and arbitrageurs have already looked for opportunities among the current Nasdaq 100 names, betting on SpaceX’s quick inclusion without waiting for the actual date, and left traces of their buying and selling pressure in prices?
Put differently: are there attractive trades, backed by a valid rationale, that such actors could have already put on since the official fast-track announcement of March 30th, impacting the prices of the stocks involved?
A plausible trade idea we came up with revolves around the concept of estimating market impact (cross-sectionally) among index constituents.
Rebalancing Flow Fragility
Provided that rebalancing flows in market-capitalization weighted indexes are predictable by design, sophisticated market participants could estimate which stocks in the current Nasdaq 100 should be more impacted by the trackers’ selling, and which ones less. Building on this thesis, they could sell the first group and bid the second, anticipating that certain names will be hurt by the large rebalancing flows far more than others: in the process of building sizeable positions (consistently with what demand-system asset pricing theory would suggest), they should leave a visible trace in prices
Following this idea, we set out to create a rebalance fragility metric of our own.
The Nasdaq 100 employs what its official methodology calls a modified market-capitalization weighting scheme: weights are proportional to each constituent’s market cap, subject to a set of rules designed to handle edge cases, such as caps on low-float names and constraints on the very largest weights. For the sake of simplicity, we can relax these constraints and treat the index as purely market-cap weighted.
Under this assumption it can be demonstrated (we omit the algebra for brevity) that the dollar quantity a tracker must sell in each stock after a new index addition is simply proportional to that stock’s market cap.
Where Mi is the market capitalization of stock i and k is a constant that applies equally across all stocks. Now that we know how much notional trackers will need to sell, we can turn to the “square-root law” of Toth et al. (2011) and isolate the participation term, suggesting that market impact (Ii) grows with the square root of the participation rate (i.e. transacted quantity Qi = k Mi over the typical stock liquidity ADLi).
Since k is common to all names and the square root preserves ranked orders, which is the cross-sectional information we need, we can drop both and rank Nasdaq 100 stocks by a simple ratio.
The above metric reads as the stock’s market cap measured in days of its average daily dollar volume.
Put simply, we expect companies that are highly liquid relative to their market cap to absorb rebalancing flows with relatively little damage, while companies that pair a large market cap with comparatively thin day-to-day liquidity should feel the impact more.
Potential Evidence
Picking from survivorship-bias free Nasdaq 100 constituents, we track the performance from 01/03/2026 until 10/06/2026 of two equal-weighted baskets of 10 stocks each, built at the close of March 30th (the day the SpaceX fast-track inclusion news became official) using Rebalance Fragility as the ranking feature.
The low rebalance-fragility basket buys the ten stocks expected to be least impacted by the trackers’ selling flow, while the high rebalance-fragility basket buys the ten expected to be most impacted.
What caught our attention is that, starting from exactly March 30th, the low-fragility stocks have generated stellar performance, with the high-fragility stocks lagging far behind.
In our view, this pattern may reflect (at least in part) the “footprint” of hedge funds and arbitrageurs already positioning ahead of SpaceX’s potential fast-track inclusion: even though academia proposes trading such events on the side of the stock being added, we think sophisticated market participants may have attempted to capture it in a different way this time.
For readers who would like to explore the framework in greater depth, we have published a dedicated companion article containing the complete Nasdaq 100 fragility ranking as of March 30th, along with the full methodology and details.
Conclusion
Academic literature suggests that market participants’ flows in anticipation of index-inclusion events can be meaningful and observable, with trackers buying mechanically at the effective inclusion date, arbitrageurs positioning ahead of them, and prices being impacted before the index actually updates its holdings.
With our example, we propose a different trade thesis, focused not on the stock that enters the index but on the others that must make room for it.
The return divergence we document since the official fast-track announcement appears consistent with demand-system asset pricing theory, and with hedge funds and other sophisticated participants having traded along similar lines, impacting prices and effectively leaving “traces” behind.
If you found this article useful, feel free to leave a comment and reach out via direct message or email at info@concretumgroup.com for any questions.
Disclaimer
This publication is provided by Concretum Group for informational, educational, and research purposes only. It does not constitute investment, financial, legal, or tax advice, nor a recommendation to buy or sell any security, instrument, strategy, or investment product. All investments involve risk, including possible loss of principal. Past performance, backtested performance, and historical analysis are not reliable indicators of future results. Readers should conduct their own research and consult qualified professionals before making investment decisions.
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