Industry Overview: Mixed Signals Amid Long-Term Promise
Space stocks have exhibited significant volatility in 2025, with capital-intensive business models facing scrutiny in the current interest rate environment. While long-term potential remains massive, near-term financial sustainability continues to separate winners from laggards. Let's examine the current state of play across several key names.
Terran Orbital (LUNR): Satellite Specialist at a Crossroads
Recent Performance: Terran Orbital's latest earnings revealed a revenue increase of 18% year-over-year, yet cash burn remains elevated as the company scales its satellite manufacturing capabilities. The backlog has grown to approximately $220 million, showing sustained demand for its services.
Bull Case:
- Growing defense contracts providing revenue stability
- Expanding production capacity with potential for economies of scale
- Strategic partnership with Lockheed Martin offers credibility and funding channels
- Satellite-as-a-service model could drive recurring revenue streams
Bear Case:
- Ongoing dilution concerns with frequent capital raises
- Competition intensifying from both startups and established aerospace players
- Extended timeline to profitability straining investor patience
- Heavy dependence on government contracts creates concentration risk
Trading Strategy: For bulls, selling cash-secured puts at the $1.50 strike provides attractive premium while establishing a potential entry point below current market value. Bears might consider buying $2.50 puts with 3-6 month expiration, giving time for financial realities to impact valuation.
Rocket Lab (RKLB): The Small Launch Leader
Recent Performance: Rocket Lab's Q1 earnings exceeded expectations with a 40% revenue increase, driven by both launch services and space systems. Launch cadence has improved to approximately one mission per month, with the Neutron rocket development progressing toward its initial test flight.
Bull Case:
- Established track record with consistent launch success
- Vertical integration strategy creating multiple revenue streams
- Neutron rocket development expanding addressable market
- Space systems division showing impressive margins
Bear Case:
- Neutron development costs creating significant cash drain
- Increasing competition from emerging small launch providers
- Valuation still assumes perfect execution of future growth plans
- Muted reaction to positive earnings suggests sentiment challenges
Trading Strategy: A bullish vertical call spread (buying the $7 calls and selling the $9 calls with 3-month expiration) limits capital at risk while providing leveraged upside if RKLB breaks resistance. Bears might consider shorting shares with tight stop losses, as high short interest creates squeeze potential on positive news.
Virgin Galactic (SPCE): Turbulent Trajectory
Recent Performance: Virgin Galactic's recent earnings were disappointing, with minimal revenue and continued cash burn. Flight schedules remain inconsistent, and the company announced another capital raise to fund operations through 2026.
Bull Case:
- Unique experience with no direct competitors currently operational
- High-net-worth customer waitlist providing potential future revenue
- Brand recognition that could facilitate expansion into adjacent markets
- Significantly reduced valuation from previous highs
Bear Case:
- Uncertain timeline to meaningful revenue generation
- Regular dilution of shareholders through capital raises
- Limited scalability of current business model
- Possible technological obsolescence as competitors advance
Trading Strategy: For those with a contrarian bullish outlook, selling deep out-of-the-money covered calls against long stock positions can reduce cost basis while maintaining upside exposure. Bears might consider buying put spreads to capitalize on potential further decline while limiting premium outlay in this high-volatility name.
AST SpaceMobile (ASTS): Direct-to-Smartphone Promise
Recent Performance: AST SpaceMobile recently demonstrated successful direct satellite-to-smartphone connectivity, a significant technical milestone. However, earnings showed minimal revenue with accelerating cash burn as the company works toward its commercial constellation deployment.
Bull Case:
- Revolutionary technology with massive addressable market
- Strategic partnerships with major global telecom providers
- Successful technology demonstrations validating the concept
- First-mover advantage in direct satellite-to-smartphone connectivity
Bear Case:
- Extremely capital-intensive deployment schedule ahead
- Regulatory hurdles in multiple jurisdictions
- Execution risk in scaling from demonstration to commercial service
- Competition from established players entering the space
Trading Strategy: This remains a binary outcome stock where options straddles (buying both puts and calls at the same strike) could capitalize on major price movements regardless of direction. Conservative investors might consider waiting for constellation deployment milestones before establishing positions.
Planet Labs (PL): Earth Observation Economics
Recent Performance: Planet Labs reported steady growth in its subscription revenue model during its latest earnings call, with a 22% increase in Annual Contract Value. Customer retention rates remain strong at 95%+, though the path to GAAP profitability remains extended.
Bull Case:
- Recurring subscription revenue providing business stability
- Growing applications across industries for earth observation data
- Established satellite constellation already in operation
- Strategic partnerships with government agencies and enterprise clients
Bear Case:
- Slower growth than initially projected post-SPAC
- Increasing competition from both startups and traditional aerospace
- Commoditization risk for certain types of earth imagery
- Stretched timeline to profitability
Trading Strategy: Selling cash-secured puts at the $2.00 strike offers an attractive entry point if assigned, with premiums enhancing returns. For those already holding shares, covered calls can generate income while waiting for business fundamentals to improve.
Sector-Wide Trading Considerations
Several patterns emerge across the space sector that inform our trading approach:
- Liquidity Management: Companies with stronger cash positions and lower burn rates deserve valuation premiums in the current environment.
- Revenue Visibility: Firms with government contracts or subscription models offer more predictable financial trajectories.
- Milestone Catalysts: Major technical achievements drive significant short-term price movements across the sector.
- Options Premiums: Elevated implied volatility creates opportunities for premium collection strategies.
- Portfolio Allocation: Given binary outcomes for many companies, position sizing is critical within this high-risk sector.
Putting It All Together: Our Current Approach
We're maintaining a selective exposure to the space sector with the following strategic positioning:
- Core Holdings: Establishing small positions in leaders with proven technology and clear paths to profitability (RKLB, PL)
- Premium Collection: Selling puts on beaten-down names near support levels (LUNR, SPCE)
- Catalyst Plays: Using limited-risk options strategies around major announcements and milestones
- Hedge Positions: Maintaining small put positions as portfolio insurance against sector-wide drawdowns
The space economy represents one of the most significant long-term growth opportunities of our generation. However, the path to profitability will be neither straight nor guaranteed for all participants. By calibrating both exposure and expectations, we can navigate this sector's extreme volatility while positioning for potential outsized returns.
Disclaimer: This blog post is for educational purposes only and should not be considered investment advice. SharkWater Trading may hold positions in the securities mentioned. Past performance does not guarantee future results. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.
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