C3.ai’s Unusual Options Activity Is Calling Your Name

Yesterday, the only news from C3.ai (AI) was the company’s announcement that it had signed a strategic alliance with McKinsey & Company, the global management consulting giant.

“The alliance combines the deep technical expertise of McKinsey’s AI practice, QuantumBlack, and its track record of deploying and scaling AI solutions across industries with C3 AI’s cutting-edge Enterprise AI software applications to help clients unlock the power of Enterprise AI and agentic AI to realize significant operational improvements and unlock new growth opportunities,” stated the company’s Jan. 22 press release. 

The alliance will focus on the energy, manufacturing, and financial services sectors. While any tie-up with a company of McKinsey’s size is welcome news, it’s not quite a game-changer. 

Yet, C3.ai had a share volume of 9.6 million on Wednesday, nearly double its 30-day average. Further, its options volume was 236,302, three times its 30-day average. More importantly, regarding its unusual options activity, five were in the top 100 on the day, including the top two.

C3.ai’s unusual options activity is calling your name. Here’s the way I might play it. 

C3.ai the Business

Veteran software entrepreneur Tom Siebel founded C3.ai in 2009, four years after selling Siebel Systems to Oracle (ORCL) for nearly $6 billion. The enterprise software platform initially focused on the energy industry but pivoted to AI around 2018. 

In December 2020, it went public at $42, jumping 140% on its first day of trading and reaching $183.90 before the end of its first month as a public company. However, since the beginning of 2022, it’s traded no higher than $45. 

Why is that? Over the same period, Nvidia’s (NVDA) stock gained 400%. It, too, is laser-focused on AI.

It starts with the company’s growth. Since the end of fiscal 2020 (April year-end), C3.ai revenues have had a CAGR (compound annual growth rate) of 19.3%. That’s good growth but not spectacular. I would usually be all over this type of business; I prefer sustainable development, not 70% a year for the next 10 years, which is unrealistic for almost every company. 

When you couple modest growth for a software company with tremendous operating losses, you understand why analysts have stayed away. In the last 12 months ended Oct. 31, its operating loss was $313 million. It ended Q2 2025 with an accumulated deficit of $1.22 billion. It will have to earn that back in subsequent years to build retained earnings. Analyst estimates don’t see that happening in the next two fiscal years through 2027. 

Fourteen analysts cover its stock. They rate it a Hold (3.2 out of 5) with a median target price of $36.99, 10% higher than where it’s currently trading. 

From a valuation perspective, its enterprise value of $3.62 billion is 10.4x revenue, and its market cap of $4.34 billion is 5.0x tangible book value per share. Neither is in nosebleed territory relative to its peers. 

However, the question remains whether Tom Siebel and C3.ai can successfully execute their plans to capture a decent-sized portion of the potential $600 billion addressable market for AI software.    

It’s a big if.

The Unusual Options Activity

As I said in the introduction, C3.ai had the top two unusually active options Wednesday—defined as expiring in seven days or more with a Vol/OI ratio of 1.24 or higher—and five in the top 100. Based on my definition, it had 11, all but one call option.

As you can see from the chart above, 10 of the 11 unusually active options yesterday expire a week from tomorrow. Nine of them are calls. 

The outlier is the $32.50 put. If you’re an aggressive options investor, the annualized return is a very high 85.2% [$0.72 bid price / $33.63 current price * 365 / 9 days to expiration]. However, you better be quick to sell if AI stock moves lower and you don’t want to own it. 

The calls expiring in nine days have strike prices ranging from $34.50 to $40, with the ITM (in the money) probabilities between 39.68% and 6.44%. 

Counter-intuitively, as a trade, the $40 strike (6.44% ITM) is the play with an ask price of just $0.14, or 0.4% of its current share price. The share price must increase by $1.91 (5.7%) to double your money, based on a 0.07320 delta [$.14 / 0.07320] before expiry on Jan. 31. That’s doable. 

Generally, if you can minimize your outlay but still have a shot at making money, it’s a smarter bet than making a much higher outlay, which causes the share price to retreat instead of moving higher. 

So, the $34.50 call (39.68% ITM) has an ask price of $0.95, which is still only 2.8% of its current price but is nearly 7x the outlay of the $40 call. It’s not a meaningful differential for one contract, but it is if you’re buying 25 or more--there were 12 trades of this size with trade prices between $0.90 and $1.80 yesterday--it makes a difference. 

If it were me, I’d move off the Jan. 31 expiry to the Feb. 21 $36 call. You’ve got 21 additional days to make money on your trade, and the outlay of $1.44 is still only 4.3% of the current share price. You can double your money if AI stock appreciates by $3.76 (11%) in the next 30 days. The ITM probability is 34.29%, marginally lower than the Jan. 31 $34.50 call with three more weeks of time decay.      

It’s your call.