Rocket Lab Plunges 5.8%—Is This the Bottom or a Warning Signal?

Summary
• Craig-Hallum initiates coverage with a 'Hold' rating and $51 target
• Cathie Wood’s ARKX ETF sells 64K shares, valued at $3M
• Analysts call RKLB 'overvalued' and 'overbought' amid a 79.7% YTD surge

Rocket Lab (RKLB) has plunged 5.8% to $44.68, trading as low as $44.41 and as high as $48.165. The selloff follows a 'Hold' rating from Craig-Hallum, Cathie Wood’s stake reduction, and analyst warnings of overvaluation. With a 12.7% discount to its 52-week high, the stock’s volatile trajectory raises questions about whether this is a buying opportunity or a deeper correction.

Analyst Caution and Cathie Wood's Exit Weigh on Shares
Rocket Lab’s sharp decline stems from Craig-Hallum’s cautious 'Hold' rating, which highlighted risks in the Neutron rocket’s aggressive timeline and competition from SpaceX. The firm’s $51 price target, while optimistic, signaled to investors that the stock is 'priced for perfection.' Compounding this, Cathie Wood’s ARKX ETF sold 64,326 shares—valued at $3 million—triggering profit-taking and amplifying downward pressure. Analysts also flagged the stock as 'overbought' technically, with a 79.7% YTD surge creating a correction risk. Meanwhile, Firefly Aerospace’s IPO announcement added speculative pressure as investors reallocated capital to newer entrants.

Aerospace & Defense Sector Mixed as Rocket Lab Dives, LMT Holds Steady
While Rocket Lab’s shares tanked, the broader Aerospace & Defense sector showed resilience, led by Lockheed Martin (LMT), which edged up 0.06%. The sector’s mixed performance underscores that Rocket Lab’s selloff is driven by stock-specific factors—namely, its high valuation and project risks—rather than industry-wide headwinds. LMT’s stability highlights the contrast between speculative growth plays and established defense contractors.

Options Playbook: High-Leverage Puts and Calls for Volatility Play
• MACD: 4.72 (above signal line 4.64) – bullish momentum
• RSI: 69.9 (near overbought) – caution for pullback
• Bollinger Bands: $30.75–$54.12 – wide range suggests high volatility
• 200D MA: $24.09 – current price well above, indicating long-term strength

Rocket Lab’s technicals paint a mixed picture: bullish momentum from the MACD but a near-overbought RSI suggesting short-term resistance. Key levels to watch include the 200D MA at $24.09 and the Bollinger Band lower bound at $30.75. Aggressive traders may target the $44.41 intraday low as a potential support level, while the 52-week high at $53.44 remains a distant ceiling.

Top Option 1: RKLB20250801P43 (Put, Strike $43, Expiry 2025-08-01)
• IV: 75.66% (high volatility)
• Leverage: 50.03% (moderate)
• Delta: -0.328 (sensitive to price drops)
• Theta: -0.006 (slow time decay)
• Gamma: 0.0916 (responsive to price swings)
• Turnover: $91,381 (liquid)
This put option offers a leveraged play on a potential breakdown below $43, with high gamma ensuring rapid payoff in a bearish move. Projected 5% downside scenario (to $42.45) would yield a $0.55 payoff, offering 5.5x the strike price’s intrinsic value.

Top Option 2: RKLB20250801C46 (Call, Strike $46, Expiry 2025-08-01)
• IV: 79.22% (high volatility)
• Leverage: 42.41% (aggressive)
• Delta: 0.383 (moderate sensitivity)
• Theta: -0.298 (rapid time decay)
• Gamma: 0.0924 (responsive to price swings)
• Turnover: $303,997 (liquid)
This call option is ideal for bullish bets on a rebound above $46. A 5% upside (to $46.86) would yield a $0.86 payoff, translating to 1.9x the strike’s intrinsic value. Aggressive bulls may consider RKLB20250801C46 into a bounce above $47.

Backtest Rocket Lab Stock Performance
The backtest of RKLB's performance after an intraday plunge of at least -6% shows favorable short-to-medium-term gains. The 3-Day win rate is 54.66%, the 10-Day win rate is 52.07%, and the 30-Day win rate is 55.17%, indicating a higher probability of positive returns in the immediate aftermath of such events. The maximum return during the backtest period was 12.75% over 30 days, suggesting that RKLB can generate decent gains even after a significant intraday decline.

Bullish Breakout or Bearish Breakdown? Watch These Levels Closely
Rocket Lab’s 5.8% drop reflects a mix of analyst caution, profit-taking, and technical overbought conditions. While the long-term bullish trend (52W high at $53.44) and strong 200D MA suggest resilience, the short-term overbought RSI and high gamma options indicate volatility is far from over. Investors should monitor the $44.41 support level and a potential test of the 200D MA at $24.09. Meanwhile, sector leader Lockheed Martin (LMT) remains steady, up 0.06%, offering a contrast to Rocket Lab’s turbulence. For aggressive traders, the RKLB20250801P43 and RKLB20250801C46 options present leveraged plays on either a breakdown or breakout. Watch for a decisive move above $48.16 or a breakdown below $44.41 for next steps.