QS: Trade Idea 2 - Review
This is mostly for my personal notes. See disclaimer.
I’ve been working off of the assumption that the back half of this year was going to be pretty eventful for Quantumscape. I’ve listed out all the potential catalysts I’ve been keeping my eye on in an Upcoming Catalysts post.
I’ve been messing around with some options trade ideas for potentially capturing these repricing events. One of which was laid out near the end of June (linked below).
In this post, I disclosed that I bought some July 12th call options with a $7 strike at a $0.02 premium. As of market closing on Friday (the 12th), Quantumscape traded at $8.25, making those options worth $1.25: a cool 60-to-1 payout on that original two cent premium.
Unfortunately…. I closed those contracts prior to the PowerCo deal announcement. My belief was that any big announcement would come prior to the end of June (to capture the news in the Q2 earnings cycle). I think Jagdeep might have been working off the same timeline because his (insider) sales went through the day prior to the announcement. Unless he was required to do that for regulatory reasons…
I also had a few other contracts open, overall I was right around break even.
Lessons Learned?
I’m not sure if I would have played it much differently had I gotten another chance. I was trying to be tactical with these plays. My plan wasn’t to continue rolling weekly options into the end of the year. I also didn’t want to purchase anything longer dated than a few weeks as I didn’t want to put a huge amount of capital to use, and any payout for a long dated option (January 2025 for instance) wouldn’t have really moved the needle in terms of my overall portfolio value given the size of the bets I wanted to place. These were all very tiny bets.
In hindsight, I think I would have designated a small amount to a longer dated position just to capture any interim announcement from Quantumscape (like the one we got for the PowerCo deal).
Overall, I think the process was pretty sound, just the execution could’ve been better.
Heading Into the Remainder of 2024
I think there are a few more catalysts we can keep an eye on as we head into the back half of the year. After the recent jump, I’m not sure if there’s much more juice to be squeezed in the near term, though. We could see some momentum carry into, and beyond, the earnings call in two weeks, but option premiums seem pretty frothy at the moment.
I still like my other trade idea as it allows the ability to add a significant amount of additional exposure while capping the downside. At this point, we might see some sustained momentum as we head into 2025 and through to 2026. It’s certainly a way to hedge risks that QS still faces. In general, my plan right now is to wait until the buzz from the recent announcement dies down, which will probably be a few weeks after the July earnings call. Premiums should get a little cheaper once short term volatility stabilizes a bit.
We may get an opportunity to ‘play’ the earnings call as that date approaches (July 24th). But again, I’d personally like to see options premiums pull back a bit before I became interested in making a play on that.