Gus Downing Bets on a Rocket Lab Bounce With an Aggressive Ratio.

Rocket Lab

The speaker is long Rocket Lab using a two-by-one put ratio spread, betting on a potential rally from the support level at $64. The trade is based on historical resistance at this level and the belief that Rocket Lab will rally alongside SpaceX. The risk is higher than the reward, but the speaker is willing to take it due to the attractive risk-reward profile and the potential for a reversal at the support level.

Rocket Lab

The speaker is shorting Rocket Lab with a defined risk profile, using a short put and long call at the 60 strike. The speaker is willing to exit if the stock falls below 60, indicating a bearish outlook. The risk profile is described as one-to-one, with a reward-to-risk ratio of 7% in the money. The speaker is cautious about the trade due to its high risk profile but acknowledges the potential reward.

Support Level Acknowledgment in Rocket Lab

The speaker emphasizes the importance of acknowledging repeated support levels in Rocket Lab's price action, particularly around the low 60s. This support has been tested multiple times, with bounces and consolidations, indicating its significance as a key level for potential reversals. The rationale is that repeated testing of a level suggests it is a critical psychological or technical barrier, and acknowledging it is a necessary step before entering a trade.

Correlation Between Rocket Lab and SpaceX

The speaker suggests that Rocket Lab and SpaceX are correlated, with Rocket Lab's performance often following SpaceX's. The speaker believes that a bullish or bearish story for one company in the sector, particularly SpaceX as the largest company, can influence the entire sector. This implies that the market may treat these companies as part of a broader sector narrative rather than individual entities.

What is the risk-reward profile of the trade?

The trade has a higher risk of loss due to the undefined risk of the short put, with a max loss nearly five times the max profit. The speaker acknowledges this risk but is willing to take it due to the potential for a reversal at the support level.

TakeawayThe trade is aggressive and has a higher risk of loss, so it should be approached with caution.

What is the risk profile of the trade?

The speaker describes the trade as having a one-to-one risk profile, with a reward-to-risk ratio of 7% in the money. The speaker acknowledges that the trade is inherently more guaranteed due to the deep in-the-money strike, but the premium paid is minimal.

TakeawayThe trade involves a one-to-one risk profile with a defined reward-to-risk ratio, but the speaker notes that the trade requires careful management due to its high risk profile.