IonQ Scores Big with the Air Force But Is There More Left in the Tank?

One of the hottest names on Wall Street at the moment, quantum computing hardware and software specialist IonQ (IONQ) saw its equity value soar last Friday. According to Barchart content partner The Motley Fool, IonQ announced that it landed a new sector-related contract with the U.S. Air Force Research Lab. That was the justification investors needed to send IONQ stock up over 20%.

Per TMF, the contract — which is valued at $54.5 million — will see the enterprise partner with the military branch “to design, develop, and deliver technology and hardware that enables the scaling, networking, and deployability of quantum systems” over the next four years. While the accompanying press release provided few concrete details, the takeaway is that IonQ is gaining credibility.

To be sure, the quantum computing industry has all the makings to be a viable one. Per Grand View Research, the global arena reached a valuation of $1.21 billion last year. Analysts believe that the ecosystem could expand at a compound annual growth rate (CAGR) of 20.1% from 2024 to 2030. At the culmination point, the segment may be worth $4.24 billion.

Nevertheless, concerns exist for IONQ stock. For one thing, it’s a rather small enterprise with a market capitalization of just over $2 billion with last week’s jump. Financially, the company might raise eyebrows among conservative investors. In 2023, IonQ generated sales of $22.04 million, which was up sharply from the prior year’s tally of $11.1 million. However, net loss came out to nearly $158 million.

From a trader’s perspective, IONQ stock has already popped almost 39% in the trailing month. There’s a chance that most of the good news has now been baked into the security. Also, the Barchart Technical Opinion indicator rates shares as a “Weak Buy.”

It’s not a sell. But it’s also not the most convincing take ever.

Unusual Options Activity Still Shines Bright for IONQ Stock

Despite the legitimate concerns over IONQ stock, the underlying entity unsurprisingly represented one of the highlights in Barchart’s screener for unusual stock options volume. With the derivatives market representing the arena for the smart money, it’s always helpful to consider its dynamics.

Following the close of the Sept. 27 session, IONQ stock options volume reached 106,896 contracts against an open interest reading of 168,768 contracts. Further, Friday’s volume was 785.78% above the metric’s trailing-month average. Again, to no one’s shock, call volume hit 93,929 contracts versus put volume of 12,967.

One nuance about options is that a contract bought implies a contract sold. To better understand institutional sentiment, it’s useful to consider options flow data. This screener filters exclusively for big block transactions — no one or two contracts that regular retail investors might transact.

Per Barchart, the net trade sentiment — calculated by the net total of premium value associated with bullish and bearish sentiment options — hit $329,200, favoring the bulls. Overall, premiums for bearish option trades sat at $-367,300 while premiums for bullish options reached $696,500.

Essentially, the options flow data confirms our initial gut reaction: the heftier volume for calls indicates bullish sentiment among the true smart money players. In addition, investors can also consider the Greeks for various IONQ option chains. Specifically, the delta magnitude for calls appears to be higher than the delta for puts. In other words, the market anticipates IONQ stock to rise.

Providing even more clarity, we know through Barchart’s volatility screener that on average, IonQ’s implied volatility (IV) runs hotter than historical volatility (HV). Long story short, the market is anticipating big movement in the stock, meaning that both puts and calls are priced at a relatively rich premium.

Don’t Fight the Tape

To be clear, no one knows for certain where IONQ stock will head next. But because the underlying enterprise is a small company with a high beta (2.04 at time of writing), we need to apply objective thinking. We know that the delta for IONQ options run higher for calls than puts. We also know that IV is well above HV.

In this case, a net credit strategy — specifically a bull put spread — may be prudent. Here, we’re not so much bullish but rather, we’re betting against the bears by underwriting the risk that IONQ stock will not decline in value. The purpose of the put spread is to generate income from a sold put and buy a put at a lower strike price to cap off the sold option’s liability (upon assignment).

One idea to consider is for the options chain expiring Oct. 11:

• Sell the $10 put at a bid of 80 cents per contract (or $80 when multiplied by 100 shares).
• Buy the $8.50 put at an ask of 24 cents.
• The maximum profit is the net income received or 56 cents (80 cents – 24 cents).
• The maximum loss comes out to 94 cents (the difference in the strike prices minus the premium received).
• The breakeven price is $9.44 (IONQ stock closed at $9.71 on Friday).

With this trade, we simply need IONQ stock to rise to $10 (or higher) to receive the full reward. That’s about 3% up from Friday’s close, which seems reasonable. Fundamentally, there’s brewing excitement over quantum computing and its potential overlap with artificial intelligence. Plus, IonQ generated significant credibility.

No, I don’t expect IONQ stock to deliver another 18% run in a week. It just needs to get a fraction of that to benefit from some potentially sweet income.

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.