With the Bullishness Baked In, Take the Smart Bet with Intuitive Machines (LUNR)

You don’t need many excuses these days to wager on space exploration firm Intuitive Machines (LUNR). Tied to the burgeoning space economy — an arena that could be worth over $1 trillion by 2030 — LUNR stock represented one of the few special purpose acquisition companies (SPACs) that showed great promise. To be fair, LUNR still struggled following a burst of initial enthusiasm. However, the early hype is now meeting justification.

Earlier this week, Barchart content partner The Motley Fool reported that Intuitive saw its market value jump by 60% in the first few minutes of the midweek session. That was after NASA announced a gargantuan $4.8 billion moon contract with the space enterprise, which specializes in a range of lunar and orbital services.

Labeled as “GEO to Cislunar Relay Services,” the contract encompasses communication services to the moon from October 2024 through the end of September 2029. Per TMF, an option exists for further extension of the deal by up to five years.

Notably, the “contract isn't just a (much) bigger contract than the kind Intuitive Machines has been winning from NASA so far. It's an entirely new kind of work that NASA is hiring Intuitive to do.” Along with its specialty of landing payloads on the moon, the space agency is turning to the company for space communications services. That could open the door to billion-dollar annual sales.

If that wasn’t compelling enough, analysts have jumped on the bandwagon, pounding the table on LUNR stock. Right now, Barchart reports that Intuitive enjoys a unanimous Strong Buy rating among five expert voices. It really doesn’t get much better than that.

Should You Buy LUNR Stock? I Wouldn’t Bet Against It.

On Thursday, LUNR stock jumped over 24%. Over the past five sessions, the security gained nearly 64%. Of course, following such a blistering run, there’s a common assumption that you don’t want to chase a red-hot asset. Primarily, the early stakeholders will want to take some profits off the table, thus potentially causing a downturn.

Here’s the thing — I believe TMF when its experts state that the NASA contract is a big deal. As they noted, Intuitive already was doing things that others couldn’t: landing payloads on the moon. Now, by moving into new ground with space communications, the deal could generate substantial cash for the business.

Nevertheless, the market is forward-looking. By the time we’re reading about an event in our favorite financial publication, most of the good news has likely been baked in. At the same time, there’s nothing to suggest that LUNR stock will tumble just for the heck of it. No, it’s quite possible Intuitive inked a gamechanger of a contract.

So, I wouldn’t bet against LUNR stock but is having such a pensive attitude capable of generating profits? The answer is yes — it’s definitely possible, maybe even probable.

Rather than attempting a net debit strategy — where we pay a debit now in the speculation of earning a profit later — we may consider a net credit strategy. Instead of paying a debit, we receive credit. Should the opposite side of the trade (the debit payer) not see their speculative thesis pan out, we get to keep the entirety of the credit.

This is all possible through what’s known as a bull put spread.

Scalping Some Income Off Intuitive Machines

One of the indispensable tools that Barchart offers for every “optionable” security is the vertical spread screener. You’ll find it on the left-side menu bar of the target company’s Price Overview screen. Rather than plot potential multi-leg transactions by hand, Barchart’s algorithm calculates all the mathematically rational ideas.

Stated differently, if there is a non-zero chance that the strategy will be profitable, Barchart will list it. I’ve worked with multiple finpubs throughout my career and this is by far the most useful trading tool I’ve encountered.

Getting back to LUNR stock, a bull put spread — which is roughly equivalent to strategically punting the ball to the corners in an NFL game — could be ideal. The implied volatility for the options chain expiring next Friday (Sept. 27) is noticeably higher than the historical volatility (181.2% versus 149.83%). All other things being equal, there’s an incentive to sell options as the premiums would be more expensive than usual.

One idea to consider is as follows:

• Sell the $8 put at a bid of 35 cents per contract.
• Buy the $7 put at an ask of 15 cents per contract.
• The net income (credit received) is 20 cents. This is the maximum we can gain from the trade.
• Maximum loss stands at 80 cents.
• The breakeven price comes out to $7.80.
• The risk-reward ratio is 4 to 1 (for every $1 of income received, $4 is at risk).

This trade is compelling because unlike the net debit strategies (buying a straight call or a call spread), it’s difficult to know if LUNR stock has anything left in the tank. It’s already gained 64% in the past week so a deceleration may be in order.

However, deceleration doesn’t necessarily mean deterioration. Intuitive’s fundamentals appear as bright as ever. Thus, the market could still be greedy. It’s just that it might not be as greedy as it was a few days ago. That’s what makes the bull put spread so compelling: punt the ball and let your defense get you a stop.

Don’t try to force the issue with a debit strategy, which is akin to throwing into triple coverage. The long balls connected earlier (that’s why LUNR stock is up 64% in a week). In my opinion, you probably don’t want to go long again. Instead, it’s time to play the credit side with an effective punt.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.