Shares of battery technology company QuantumScape Corporation (QS) are down nearly 60 percent over the past year. One trader sees further downside in shares over the coming months.
That’s based on the January 2023 $9 puts. With 102 days until expiration, 11,148 contracts traded compared to a prior open interest of 176, for a 63-fold rise in volume on the trade. The buyer of the puts paid $1.67 to make the downside bet.
Shares last traded for just over $9, making this an at-the-money trade. That puts shares about 12 percent over their 52-week low of $8.19.
QuantumScape is one of many early-stage companies that went public during the last bull market. The company isn’t yet profitable. The company is burning through about $300 million in cash per quarter right now, but still has nearly $1.3 billion on the balance sheet, so it can likely survive to the next bull market.
Action to take: Shares are likely to keep trending down in the short term, even though the company is likely to survive in the long term. Interest buyers can likely get a crack at shares under $9, and possibly at a new 52-week low in the coming weeks if the market trends lower.
For traders, the puts are priced for mid-double-digit gains in the coming months on a drop in shares. That’s a reasonable price and profit potential on the early-stage tech company, making for a reasonable market hedge in addition to a company-specific trade right now.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.