Options Dilemma: Where Will Rigetti Computing (RGTI) Head Next?

It’s probably the question that’s on most investors’ minds: where will quantum-computing specialist Rigetti Computing (RGTI) head next following its stratospheric run? For quite some time, RGTI was literally a penny stock. However, a 463% return over the past 30 days has completely flipped the narrative. Nevertheless, it’s worth asking how long such a run can last given obvious concerns.

As Barchart content partner Zacks Investment Research pointed out, there has been a frenzy in the ecosystem following Alphabet’s (GOOG, GOOGL) Google unveiling its new computer chip called Willow. This innovation “can perform calculations in less than five minutes that would take one of the world’s most powerful supercomputers almost an eternity.”

However, the research firm also explained that “investors should be cautious with smaller companies that may be many years from generating meaningful revenues.” Conspicuously, during the third quarter, Rigetti saw revenue declines on a sequential and year-over-year basis. Granted, that’s looking at past data but this also lends to fundamental skepticism.

To be fair, the concerns surrounding RGTI stock haven’t stopped activity in the derivatives market. Yesterday, RGTI represented one of the names in Barchart’s unusual stock options volume screener. Specifically, total volume reached 264,793 contracts against an open interest reading of 515,390 contracts. Monday’s volume stood 43.04% above the trailing one-month average metric.

Further, calls outpaced puts — 155,408 contracts versus 109,385 contracts, yielding a put/call volume ratio of 0.7. However, options flow data (which focuses exclusively on big block transactions) saw net trade sentiment slip $324,200 below parity, thus favoring the bears.

Moving forward, then, retail traders should be cautious in how they approach RGTI stock.

Laying the Statistical Framework for RGTI Stock

Although Wall Street analysts currently rate Rigetti as a Strong Buy, the everyday reality is that this assessment carries risks. Against a weekly performance framework (defined as the percentage difference between Monday’s opening price and Friday's close), RGTI stock suffers from a decidedly negative bias. Over the past 193 weeks, only 84 weeks generated non-zero positive returns.

Looking at it from a different perspective, this means there’s a 53.9% chance (accounting for five weeks that ended flat) that at the start of any given week, a trader by the end of it will lose money. That’s not a tempting proposition to say the least.

During the positive weeks, the average return comes out to 11.7% while the negative weeks average a loss of 9.7%. But with fewer positive weeks than negative weeks, the average return since RGTI stock made its public market debut sits at a 0.14% loss. Again, this is not an appetizing proposition.

However, the fear-greed continuum of publicly traded securities often fluctuates when faced with extreme circumstances; that is, price action that clocks in multiple standard deviations beyond the mean. To illustrate, there have only been 14 times when RGTI stock delivered a weekly return of 20% or greater. Out of this total, there have been eight instances (57.14%) where RGTI swung higher by the Friday of the fourth subsequent week.

Interestingly, on the positive instances, the average return stood at 51.29%. On the negative instances, the loss averaged nearly 25%. Nevertheless, a directional wager might not be prudent.

For the week beginning Dec. 9, RGTI stock delivered a 41.5% return. In the following week, it shot up 30.68%. Then, last week, it returned a blistering 40.69%. At some point, you got to figure that the implied volatility in this name will cool off.

Calculating a Projected Range for RGTI Stock

Here’s an interesting statistical fact about RGTI stock. Whenever shares deliver a 30% return or greater, the average positive performance over the next four weeks shrinks to 15%, while the average loss also declines to 17.3%. For 40% or greater, the average positive performance slips exponentially to 3.01% while the average loss rises slightly to 15.5%.

Just by gauging the ebb and flow of the market, this observation checks out. Essentially, once RGTI stock enjoys a blistering one-week run, the bulls run out of energy. At the same time, the bears start looking at the value proposition of the short trade.

Therefore, looking at this picture from a “maximum volatility” perspective, it appears that the ceiling for RGTI stock may be $25.84 (Friday’s close multiplied by 51.3%) by the options chain expiring Jan. 24, 2025. For the floor, RGTI could fall to $12.81. To be clear, these aren’t guaranteed figures but represent potentialities based on dynamic probability analysis.

With that said, there may be two high-risk options strategies to consider. The first is the short iron condor (expiring Jan. 24) with the strike prices 11P | 16P || 26C | 31C. While this trade features downside risk due to the lower breakeven point being a little high for comfort ($14.60), the yield of 38.9% is decent.

Another more direct approach is to buy a bear put spread, again for the Jan. 24 expiration date. As mentioned earlier, there is a tendency that whenever RGTI stock returns 40% or more in a week, the fourth subsequent Friday on negative instances suffers an average loss of 15%. Knowing this, a 17/14 bear put spread could be attractive.