* Options trading expected to be volatile and expensive,

with high investor demand

* Major index inclusion may impact SpaceX options activity

* Options allow both bullish and bearish bets, with high

costs and risks

By Laura Matthews and Saqib Iqbal Ahmed

NEW YORK, June 12 (Reuters) - Investors will soon get a new

way to bet on SpaceX's trajectory: options on the stock

are set to begin trading as soon as Tuesday, with early activity

expected to be heavy, volatile, and likely expensive.

Options on Elon Musk's rocket and spacecraft manufacturer will

follow its record trading debut on Friday, when shares jumped

more than 25%, pushing its valuation above $2 trillion as

investors piled in to bet on the sprawling empire, which spans

rockets to AI.

Options exchange Cboe Global Markets ( CBOE ) expects options to

start trading Tuesday, a spokesperson said. Market participants

expect a broad mix of investors to likely enter once options

begin trading, from shareholders seeking downside protection to

traders positioning for volatility in the stock.

"I expect explosive demand," said Ophir Gottlieb, chief

executive of Capital Market Laboratories. "The largest IPO ever

attached to one of the most controversial founders ever,

pursuing what might be one of the most ambitious long-term goals

ever, will equally generate some of the largest initial option

volume in dollars ever."

Options, which give holders the right but not the obligation

to buy or sell shares at a predetermined price within a certain

period, offer investors a low-cost way to gain exposure to a

company's stock and to express their views on short-term price

moves and longer-term positioning.

They usually list within days of the stock's debut. SpaceX

opened at $150 on Friday, up from its $135 IPO price, and was

trading around $172 in afternoon activity, making it the

sixth-largest U.S. company by market value at more than $2

trillion.

EXPECT UPS AND DOWNS

If SpaceX behaves anything like the shares of Elon Musk's

electric vehicle company Tesla, it will be more volatile than

the average stock, driving options activity.

Tesla's five-year beta - a measure of volatility - is 1.81,

according to LSEG data, where a reading of 1 means a stock's

volatility is in line with the market.

"I think we're going to see a lot of volatility in the

underlying stock," said Seth Hickle, chief investment officer at

Mindset Wealth Management, adding that implied volatility in

options could be "very high".

Investors expect activity to build around key events, including

the company's first quarterly report as a public entity and

potential major equity index inclusions. Nasdaq has already

adjusted its rules to ease SpaceX's entry into the Nasdaq 100.

MSCI said it will apply early inclusion rules for large IPOs,

while S&P Global has ruled out fast-track inclusion into the

broad-market S&P 500.

"We have been asked the question, 'What day will the options

be listed?' more times than any IPO I can remember," said Chris

Murphy, co-head of derivatives strategy at Susquehanna, a market

maker.

Skeptics can also use options to express bearish views without

the risk of shorting SpaceX shares outright, although it will

not be cheap.

"With a short, your risk is theoretically unlimited, your

borrow costs can be punishing, and in a thin float like SPCX's,

a short squeeze can wipe you out before you're ever proven right

on the fundamentals," said Luke Lango, chief technology analyst

at financial research firm InvestorPlace.