Unique Red Cat Option Trading Opportunity Around Pending SRR Decision Before Oct Expiration

First and foremost, trading options is extremely risky and and this content is not intended for use in making any investment decisions and provided solely for informational purposes. We advise talking with a professional financial advisor before making any option trades.

We recently launched coverage on Red Cat with a buy rating as we believe the company is uniquely positioned to capitalize on a global drone defense supercycle. See initiation report. However, prior to launching coverage Red Cat reported 1FQ25 earnings on Monday, Sep 23rd, which fell short of expectations. Despite the company providing very bullish FY25 revenue guidance, which exceeded consensus expectations by 61%, shares traded down ~20% on the results. We believe the decline is largely driven by the fact Red Cat did not yet announce they were the winner for the the US Army Short Range Reconnaissance (SRR) T2 program, which Red Cat is one of two finalists remaining. Shares are up over 200% this year and we believe a large portion of that gain is growing optimism they would be awarded this program, which we believe could double their current revenue run-rate overnight. Management remains confident in their ability to be awarded this contract, and mathematically has a 50% chance of winning. We strongly believe a decision will be made by Red Cat’s Oct 18th option expiration date. Given Red Cat’s price decline post earnings, we believe the rare high probability timing of a material catalyst creates a unique opportunity for option traders around Oct 18th expiration.

We layout our option trade ideas below.