The Market Just Gifted a Limited-Risk Call Spread in C3.ai (AI) with an 82% Payout

Traditionally, investors turn to the options market to place leveraged bets but the platform is far more useful than mere speculation. With multi-leg strategies — specifically the bull call spread — a savvy trader can exploit pricing inefficiencies to their advantage. Machine intelligence specialist C3.ai (AI) provides a clear example.

On Friday, AI stock represented one of the most compelling bull call spreads available. Specifically, traders who buy the 39/40 spread (long the $39 strike, short the $40 strike) for the Dec. 13 options chain stand to receive a maximum payout of 81.82%. That works out to $45 if all goes well and $55 down the drain if it doesn’t.

The thing is, it’s likely that shares will hit the mark. You see, with the short call strike of $40, AI stock doesn’t need to move higher from here. Instead, it just needs to not fall down. What’s more, the breakeven price sits at $39.55, almost 2.4% below Friday’s close of $40.52.

This frameworks bears repeating. As the 39/40 call spread stands now, this options strategy features low positional risk (only $55 in danger for the chance to earn $45) and low probabilistic risk (because either stasis or positive kinesis will yield a big payout). Heck, AI stock can dip 1.28% and still qualify for the max payout.

Basically, we’re talking about Wall Street’s version of backing into the playoffs. And this is why I have been adamant about getting a Barchart Premier subscription.

It’s Not Just About Data But Analytics

For the longest time, Yahoo Finance has been my go-to source for raw data. I’m not an Excel wizard or anything but I know my way around large datasets. However, Yahoo recently put its historical data downloads behind a paywall. In my opinion, the fee is quite pricey for what you’re getting.

Compare that with what’s on tap with Barchart Premier. We’re not just talking about access to historical data for pretty much anything. Rather, the platform offers screeners that filter for a variety of metrics. Recently, my holy grail has been the Options Screener, which filters for strategies that meet your specific criteria.

In my case, I had three must-have elements:

• Near expiry: Let’s face it, a lot of stuff can happen when you extend your timeframe.
• Low positional risk: I don’t want to expose too much of my capital to an all-or-nothing proposition.
• Low probabilistic risk: The trade must have better-than-coin-toss-odds.

AI stock ticked off the main boxes. As well, it’s been a reliable name. Sure, there were other enticing opportunities for meme stocks and blockchain mining enterprises. However, their underlying volatility made them suspect. While C3.ai can also be wild, it’s generally been consistent.

Plus, with Barchart stating that its probability of profit clocks in at 54.3%, AI stock appears to be the sensible wager. But you know what’s really interesting? The real-world probability for success is likely a bit higher.

Getting Creative with the Math

Looking at the historical weekly performance (based on the percentage gain or loss between the opening and closing sessions of a one-week period) of AI stock, it’s easy to be skeptical. Since December 2020, there have been 210 weeks of trading, with 120 of them falling into red ink. That’s a failure rate of 57.14%.

Over the past half-year period (26 weeks), the situation improved but not by much, with the failure rate declining to 53.85%. That still means that on any given week, your acquisition of AI stock would lose value from the Monday opener to the Friday close.

However, keep in mind that with our bull call spread, the short call strike sits at $40 or 1.28% below Friday’s close. This safety margin needs to be plugged into our calculations and with it, the probability of success (that is, success of reaching the maximum reward) lands at 53.8%, very close to the probability that Barchart calculated.

At the same time, the breakeven price is $39.55, or 2.39% below the current market value. With this figure carried over into our probability matrix, the odds of at least partial success rise to 65.38%. There’s a good chance that this call spread will favor the optimistic speculator.

At the end of the day, this is just one stock, one opportunity. Every day, golden nuggets fall out of the options cloud—gems that you could be capitalizing on. But without Barchart Premier you’re leaving those opportunities on the table. Don’t miss out on your chance to stay ahead of the game. Sign up now to get the inside track on the moves that matter.