The Drone Supercycle Wall Street Still Hasn't Priced In The stocks that dominate headlines — from the “Magnificent 7” to the latest AI darlings — tend to absorb all the market’s attention. Especially during earnings season, when price action feels loud, crowded, and obvious. But as I remind members of Masters in Trading every day I go live, the biggest opportunities rarely sit in plain sight. They build quietly underneath the surface — where early positioning can turn small stakes into generational gains. That’s where I’ve spent the last 28 years as an options trader. And it’s why I built Masters in Trading in the first place — to give everyday traders access to the same framework professionals use to spot these shifts early. Over the past year alone, we’ve identified several under-the-radar themes before they went mainstream — from quantum computing to ultrapure water to the next wave of clean energy. Today, I want to talk about another sector that still raises eyebrows whenever I bring it up: Drones. Many people still think of drones as novelties. Hobbyist toys. Light-show props. Flying gadgets. That perception is dangerously outdated. Drones are rapidly becoming core military infrastructure — a foundational pillar of the next global defense build-out. Drones are cheaper to deploy, harder to counter, and capable of inflicting disproportionate damage relative to their cost. Recent conflicts — particularly in Ukraine — have made that clear. And yet, despite this shift, most investors still haven’t fully priced in the true value of drone stocks. That disconnect is where opportunity lives. While most traders haven’t spotted the opportunity in these stocks yet – we’ve been quietly banking on these names over the last 12 months. For us, it was a tale of two drone stocks flying well below Wall Street’s radar – Karman (KRMN) and Kratos (KTOS). These weren’t mere flashes in the pan. Both trades stem from my conviction that drones are about to enter a massive supercycle in 2026. In order to understand the major land grab taking shape here, let me take you back to last year – when both stocks were a mere blip on the radars of most traders. | Recommended Link | | | | According to a nearly $1 billion money manager, a huge turning point is coming on February 25th. The kind that could devastate today's AI millionaires… But also create a rare opportunity for anyone who missed the first wave. He's giving away his #1 pick for the next phase — free. Claim It Now. |  | | | Kratos: An Undervalued Stock Setting Off the Drone Supercycle Over the last few years, I’ve produced countless videos covering military defense stocks. It’s one of my longest investing themes right now. And each one has included at least one mention of my favorite name in the sector – Kratos (KTOS). KTOS is one of the primary drone companies backed and funded by the U.S. government. The company builds low-cost, autonomous combat drones, including the Valkyrie, for the U.S. Air Force. The key advantage here is affordability. Kratos delivers advanced drone capabilities without the massive price tags associated with traditional military aircraft. I’ve long focused on this stock because it represents a major paradigm shift in how the U.S. will treat every kind of global conflict from here on out. Every major military operation going forward will involve drones. That’s no longer speculation — it’s already happening. In this sense, the urgency around stocks like KTOS and KRMN can’t be overstated. Both represent “land grabs” by the federal government that will shore up the U.S.’s defense capabilities for years to come. Right now, nations are prioritizing domestic supply chains. They’re ensuring they own the research, development, and production of drone technology rather than relying on foreign competitors. At the same time, drones are evolving rapidly by integrating AI, edge computing, real-time battlefield mapping, and autonomous decision-making. KTOS is key to handing the U.S. a strong advantage in defense applications around the world. And as we know, recent conflicts, particularly in Ukraine, have made this shift even more urgent. All of those factors marked KTOS as one of my favorite drone stocks. But when I recommended KTOS earlier in 2024, it wasn’t being priced at all like the essential player I knew it was. Back in March 2024, the stock was trading around $16. It was undervalued. Thinly traded. A very small valuation relative to close competitors like AeroVironment (AVAV) and Velo3D (VELO). But I was certain of the underlying value of the stock. And I knew any smart options trader could easily land a series of doubles – and even triples – with well-timed trades on KTOS. Looking back, one thing is very clear to me. We were getting in right at the start of a massive run for KTOS. Back in March, I recommended viewers of Masters in Trading LIVE climb into the July 2024 calls at $20. I even recommended buying the underlying stock itself. After all, shares were still very cheap. I knew more bullish exposure to a potential run in the stock was a must. We caught a beat on the massive call volume that started lighting up the stock in the middle of 2024. And from there, KTOS’s $16 shares exploded. We caught our first big win on the stock with a 100% gainer just under a month after opening our initial March calls. We added upside exposure with another set of calls that yielded a double – on top of our double on the underlying stock itself. Those big wins were no one off. Over the last 12 months, KTOS has gone into overdrive. From March of 2024 to January of 2026 alone, the stock has rallied over 421%. That’s undeniable momentum – and KTOS shows no signs of slowing as the stock circles new highs in February. KTOS is still a core name in the drone space and a long-term favorite. And while we’ve managed gains in this under-publicized sector, there’s one key takeaway every trader must know… Stocks like KTOS don’t gain value in isolation. I’ve told you a lot about how we capitalized on the underlying move in the stock. But I haven’t told you much about how KTOS was being valued in relation to the competition. And that’s key for us. Because that dynamic is where the real gains are made. The KRMN Trade: How We Secured Triple-Digit Gains on a Small Cap Competitor KTOS wasn’t the only player I was watching in this space between 2024 and 2025. Other names like AVAV and Elbit Systems (ESLT) kept setting off my UOA Monitor over the last two years. And right as heavy call volume began lighting up these smaller players, I kept noticing another stock repeatedly tripping my scanner – moving right along with the sector but gaining less attention than its nearest competitors. Karman (KRMN) looked like it was on a similar fast track for exponential growth to names like KTOS. For those who don’t know, KRMN supplies key components used across 100+ active missile and space programs. The company works directly with major defense contractors like Lockheed Martin, Northrop Grumman, and United Launch Alliance. That means the stock is deeply embedded inside the U.S. defense ecosystem – similar to KTOS. And just like KTOS, absolutely no retail trader was paying attention. I shared KRMN back in August of 2025 – right when options started trading on the stock. Trading volume was thin. Market cap was low. Again, we were there before most investors had a clue. But even back when I initially highlighted the stock, KRMN was already posting triple-digit growth, including 233% year-over-year earnings growth. That’s exceptional — especially for a company operating in a highly regulated industry. And the stock has only gone on to become an indisputable winner as the drone build-out takes shape. With a market cap still under $5 billion, KRMN offered meaningful upside as it scaled. This is exactly the kind of name institutions tend to discover after the early move has already begun. But not us. I recognized early on that rising U.S. defense budgets, increased NATO spending, and reshoring initiatives were creating a multi-year runway of government contracts. Those tailwinds are exactly what can propel a small-cap like KRMN to exponential gains. KRMN holds specialized government contracts that are extremely difficult to replicate. These high barriers to entry protect its competitive position — similar to what we saw years ago with KTOS. The Drone Divergence I Caught Before the Street In many ways, it was pure déjà vu. KRMN looked like the next KTOS – just at an earlier stage. And that brings us back to how we value trades in relation to each other. I always like to point out that stocks don’t carry value in isolation. The key is tracking stocks in the same or adjacent sectors that tend to mirror each other. Stocks like Nvidia and AMD – two of the biggest semiconductor companies in the world – often trace each other’s moves. It’s the same thing with base metals, software stocks, and other sectors we track here in Masters in Trading. KTOS and KRMN fall right in this camp. Compare the two stocks – and you start to see that these players have been riding a similar wave of momentum the whole time. But there’s one big (and profitable) catch. Just take a look at the price charts for both stocks below: 
From February 2025 to now, we can see that both stocks moved in a similar trajectory – but KRMN was seriously trailing KTOS in that same span. That price action made one thing very clear. While markets were starting to seed momentum in KTOS, KRMN was still way off the radar. No one saw what I was seeing just yet. And that’s precisely what tipped me off to the potential to leverage both stocks for huge profits. The KTOS/KRMN Trade Setup No One Saw Coming Luckily for us, we were already on the ground floor with both picks. In the free portfolio, we got long KRMN stock. We originally got into KRMN because the stock was grossly underperforming KTOS. And we held KRMN as it stayed cheap relative to KTOS. Liquidity improved by orders of magnitude over the next six months. And call flow was only going higher from there. That’s how early-stage institutional names evolve — first the stock, then the options volume. Looking at how it all turned out, we managed another win before most investors on Wall Street knew about it – an 82% gain in 160 days. 
Of course, markets are fickle. And the tables have turned once again for both stocks. Right now, it’s actually KTOS that’s cheap relative to KRMN. And that price imbalance just triggered another trade for us. After we sold KRMN for a hefty return, we used those proceeds to get right back in position with KTOS. It was another pure divergence trading setup – the same one that has netted us doubles and triples on both names over the last two years. Now, we have a lot of options on the table from here. We have the leverage. We have first mover advantage. And most of all, the fundamentals are firmly on our side. Anyone reading this still has the opportunity to gain exposure to these key mispricings in drone stocks. But I’m not recommending either of the picks I’ve covered to you today. In fact, I’ve got my eye on the next KTOS or KRMN from here. And when it comes to the next wave of winning drone stocks, there are simply too many names that Wall Street isn’t paying attention to yet – setting up a similar opportunity for early investors to get in position. The Drone Supercycle Is Just Getting Started In previous episodes of Masters in Trading LIVE, I’ve categorized the drone build-out into a few distinct tiers of players that I believe will become heavy hitters in the next few years. I grouped the industry into these tiers: Tier 1: Core Drone Manufacturers
These are the primary names driving the industry: - Kratos (KTOS)
- AeroVironment (AVAV)
- Elbit Systems (ESLT)
- Leonardo DRS (DRS)
Tier 2: UAV Subsystems and Defense Suppliers
These companies support drone infrastructure and components: - Velo3D (VELO)
- Sidus Space (SIDU)
Tier 3: More Speculative Names
Higher risk, earlier-stage exposure with less liquidity.
- AIRO Group Holdings (AIRO)
- Draganfly (DPRO)
- Red Cat Holdings (RCAT)
When evaluating these stocks, the focus was on market capitalization, historical volatility, implied volatility, and options liquidity. Companies with similar market caps tend to move together – just like we saw with KTOS and KRMN. And volatility helps determine whether a stock is suitable for options trading or better suited for long-term investment. Each of these tiers will become essential as the next wave of drone tech hits the market. And I want to make one thing very clear… It doesn’t just end with these stocks. Drones are no longer optional in modern defense. They are becoming foundational technology, reshaping how conflicts are fought and how governments allocate capital. The key to profiting from this trend is discipline. We don’t chase stocks at extremes. We wait for pullbacks, respect expected moves, and let the sector trend work in our favor. I’ll be tracking these names and more closely throughout 2026 on Masters in Trading Live, where we break down entries, exits, and strategy in real time every weekday at 11:00 a.m. Eastern. But if you want to dive even deeper – and get into the next exciting drone name before the crowd does… I highly encourage you to check out the Masters in Trading Options Challenge. The Challenge is where we take everything you’ve learned in my daily LIVEs — fixed risk, thesis-driven exits, laddered entries, defined-duration trades, and emotional discipline — and put it into practice in a structured, step-by-step environment. For two weeks, we walk through the foundations of real options trading the way I learned them on the trading floor. You’ll learn exactly how I think, exactly how I build trades, and exactly how I manage both the winners and the losers. Just click here to check out what the Masters in Trading Options Challenge has in store for you. Remember, the creative trader wins, | 
Post a Comment
Post a Comment