QuantumScape Stock Presents an Opportunity for a Fully-Hedged Collar Play

It’s motored higher and skidded lower. Welcome to the stock market and the plight of QuantumScape (NYSE:QS) stock.

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

As I’ll explain below though, if you want to be want to wind up as something better than a crash test dummy in QS stock, buckling up with an active collar strategy remains the vehicle of choice.

If you own QuantumScape, you’ve likely had some misery in recent days. With this year’s first-half, high-multiple risk-off trade back en vogue, there’s plenty of folks and tickers to commensurate with.

There’s likely no better vehicle to realize that pain than 2020’s hotter-than-hot ETF funds from Ark Invest (NYSEARCA:ARKK) and its outspoken but today, only human, Cathy Wood.

Among varied damage in tomorrow’s leaders are names such as Teladoc (NYSE:TDOC), Cloudflare (NYSE:NET) or Matterport (NASDAQ:MTTR). Next-gen battery outfit QuantumScape is right there with them.

Just when some QS stock investors may have believed Biden’s infrastructure bill and its emphasis on EVs and all things green was the last straw for those more pessimistic bears, it wasn’t.

A fuel-injected burst higher of 80% in just over two weeks into mid-November has fallen completely apart.

A Closer Look at QS Stock

Today, QS stock has fully reversed the rally from around $24 to $43 by moving squarely back to its late October starting line.It trades today at around $24.30.

Understandably, it’s happened amid another wave of bearish sentiment directed at growth stocks.

With its pre-sales, concept-stage ambitions of taking EVs to the next level on the back of its still unproven, multilayer, solid-state technology, there’s an obvious cause for concern.

But QS is also asking investors to be patient, and today the perception makes that more of an issue.

Is 2024 or even 2025 too long to wait? That’s what QuantumScape is asking. Moreover, that’s if the company is successful in deploying a working battery in partner Volkswagen’s (OTCMKTS:VWAGY) EVs.

Bottom line, it’s no surprise QS stock is less of a compelling narrative for bulls.

Yet that’s not to say QuantumScape isn’t a compelling vehicle to own.

QS Stock Weekly Price Chart

QuantumScape (QS) Deep pullback into collar initiation territory on QS stock
Click to Enlarge
Source: https://www.tradingview.com/

Volatility is a two-way street. When it comes to QS stock, shares continue to zig and zag.

The past handful and change of trading weeks described in the chart during which QuantumScape made its U-turn is evidence enough.

As our lifetime chart of QS shows, that barely scratches the surface with a similar but much larger about-face extending from $11.25 up to $132.73 and nearly all the way back down.

Bearing that in mind, today and on the price chart, the observation is QS stock’s volatility has put it once more into an attractive enough position for investors to consider trading a fully-hedged collar on shares.

The collar is the synthetic equivalent of a bull call spread, but it can be more than just a buy and hope proposition into expiration.

The thing is that by owning the underlying investors can adjust the strikes over time during both bullish and bearish phases. That can make for some very profitable adjustments which lead to superior risk-adjusted results in a volatile stock like QS.

On the date of publication, Chris Tyler holds long hedged positions (either directly or indirectly) in Ark Innovation ETF (ARKK) and Ark Genomics Revolution ETF (ARKG). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2021/12/qs-stock-presents-an-opportunity-for-a-fully-hedged-collar-play/.

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