QuantumScape has surged for nine sessions in a row, reaching a three-year high with shares at $15.03. This rise follows the progress in their Cobra separator process, setting the stage for commercialisation in the next two years.
The overall market saw some exits after a profitable week, with the S&P 500 up over 0.5% and NASDAQ Composite gaining 1.4%. The NASDAQ Composite was the sole major index to go forward on Friday, with a slight 0.05% rise.
Economic Indicators
Building Permits and Housing Starts exceeded expectations, and consumer inflation expectations declined significantly in a Michigan survey. QuantumScape is anticipated to provide an updated commercialisation roadmap in its upcoming business update.
QuantumScape shares hit $15 for the first time since May 2022, marking a notable rally. The stock has climbed following the announcement of reduced production speeds for its Cobra process.
The QS stock recently bounced off the 261.8% Fibonacci retracement level at $14.06. Its next targets are at $17.98 and $20.41, while support may be found near previous levels of $7.72 and $10.14, based on Fibonacci percentages.
Given the recent price action, we believe derivative traders should prepare for heightened volatility. The nine-day surge has pushed implied volatility to extreme levels, with recent readings for 30-day IV topping 130%, making options premiums expensive. This suggests the market is pricing in a significant move surrounding the company’s next update.
Options Trading Strategies
For those bullish on the upcoming commercialisation roadmap, buying call options is a direct way to speculate on further upside. We see traders targeting strike prices near the next Fibonacci resistance levels of $17.98 and $20.41, anticipating positive news from the business update. These positions would directly benefit if progress on the Cobra process exceeds expectations.
However, we must also consider the stock’s history, which includes a dramatic fall from over $130 in late 2020, reminding us of its potential for sharp reversals. With short interest recently hovering around 17% of the float, a significant number of traders are betting against the rally. This makes buying put options or selling call spreads a viable strategy for those anticipating a “sell the news” event or a pullback from the recent high.
A more risk-defined approach would be using spreads to navigate the high option costs. A bull call spread could capture a move towards the upper targets while capping the initial expense, and a straddle could profit from a large price swing in either direction after the announcement. This allows traders to have a position on the expected volatility itself, rather than just the direction.
The broader market context, with positive economic data on housing and inflation, provides a supportive backdrop for speculative growth stocks. Yet, this company’s fate in the short term is less tied to the NASDAQ’s daily moves and more to its own specific catalysts. A broader market downturn could still halt the rally regardless of company-specific news.
Ultimately, we see the upcoming business update as the key event that will determine the next major trend. The current options pricing reflects deep uncertainty, and traders should position themselves according to their tolerance for risk ahead of this pivotal announcement.
