With QuantumScape Stock This Unpredictable, Consider a Collar Option

Almost overnight QuantumScape (NYSE:QS) has gone from “supercharged” to “unplugged” with Wall Street. But is now a good time to buy shares of this cutting-edge electric vehicle (EV) stock? Let’s look at what’s happening off and on the price chart of QS stock for clues, then offer a risk-adjusted determination aligned with those findings.

a lithium ion battery
Source: Olivier Le Moal/ShutterStock.com

For the record, shares of QS never walked on water. But less than a month ago and in under four trading weeks after debuting on the NYSE, QuantumScape did charge into the high heavens with a 450% gain.

But while the frenzied excitement for the stock may have proven a bit overzealous, the rally wasn’t without a critical cause backing it up.

QuantumScape is a Silicon Valley-based startup that enjoys the blessing, or more aptly the backing, of auto giant Volkswagen (OTCMKTS:VWAGY), as well as Microsoft’s (NASDAQ:MSFT) Bill Gates.

In of itself, that kind of support is going to draw attention. And for good reason, right? But it doesn’t stop there for believers of QS.

A Closer Look at QS Stock

QuantumScape’s solid-state quantum lithium-metal battery technology has been lauded as the Holy Grail of batteries. At its core, the composition has a significantly higher energy density than today’s lithium-ion batteries. And if QS delivers as promised, it’s technology will take electric vehicles further into the mainstream.

Moreover, it would take batteries toward the promised land of storage capacity, charging performance, reliability and safety, as well as cost-efficiency.

This past month the secretive startup showed the world what 10 years and $300 million in R&D promises, without divulging the company’s “secret sauce.”

QuantumScape’s test results were apparently impressive, and the great reveal drove QS stock’s meteoric rally. That’s the good news. But cracking this 40-year-old battery problem still falls well-short of real-world applicability.

Bottom-line, QuantumScape’s breakthrough is based on individual cells, not complete batteries which require hundreds of stacked batteries. It’s potentially a huge problem.

The massive scaling-up process for commercialization still poses potential significant knowledge gaps and obvious room for outright failure. And if the technology does work some day? Well, that’s still a handful of years or more removed from 2021.

QS Stock Daily Price Chart

QuantumScape (QS) deep corrective move

Over the past few weeks, investors have woken up to the challenges with a bearish critic or two and S-1 filing fears acting as primary drivers.

Reasonably, within the framework of an extremely optimistic $20 billion valuation and frothy EV market, this could be a terrific spot to pick up the battery-maker at a substantial discount.

QS stock has given back more than 62% from its pre-reverse merger low from October. And as a standalone listed stock, from its December pullback low QS has corrected roughly 76%.

The Bottom Line on QuantumScape Stock

QuantumScape also has more than $1 billion in its war chest. The cash is enough to carry the company’s battery technology into production. But whether it will work is the $20 billion question.

What I’d propose for intermediate-term or long-term QS investors is to hedge stock exposure with a collar strategy that can be traded around shares over time.

Collars are a great vehicle for trading the trend, albeit handily underperforming an outright stock position when shares are firing on all cylinders like during December’s ginormous rally.

But as the company’s post-Christmas funk attests, when stock volatility becomes a two-way street, the defined risk attributes and flexibility of this strategy shine and offer real-world trading results bulls and bears can only dream about.

No Stocks Owned: Investment accounts under Christopher Tyler’s currently do not hold positions in any securities mentioned in this article.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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