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While Nvidia (NVDA) CEO Jensen Huang is undoubtedly a tech genius, he hasn’t made many friends recently in the quantum computing space. At the semiconductor giant’s analyst day, Huang declared that the practical utility of quantum computers could be several years away. As a result, sector-specific names crumbled badly.
One of the worst-hit enterprises was the appropriately named Quantum Computing Inc (QUBT). On Friday, QUBT stock suffered a 9.38% loss, capping off a weekly erosion of 48.09% of market value. That’s the worst one-week loss for the company ever, with the previous worst outing occurring in early February 2023, when shares lost 40.74%.
However, it would be grossly unfair to leave the discussion at that. Over the past six months, QUBT stock gained almost 1,500%. Up until the second half of October last year, QUBT traded hands in literal penny stock territory. Thanks to the boom in enthusiasm for the underlying innovation, though, the entity went parabolic in the charts.
Now, as a litany of other financial publications have mentioned, QUBT stock commands a rich premium relative to key financial metrics. That’s a “no kidding” statement if there ever was one. At the same time, the fundamentals haven’t changed. Whether quantum computers will be useful today or a decade from now, their relevance is not under question.
Subsequently, bullish investors may view companies in the quantum arena as deep value plays. But as I demonstrated for specialists like IonQ (IONQ), the statistical data doesn’t support this notion — except for Quantum Computing Inc.
Why QUBT Stock Represents the Favorable Outlier
At first glance, Quantum Computing would appear to be one of the riskiest ideas within the namesake industry. As stated previously, QUBT stock only a few months prior traded hands below a buck. That doesn’t necessarily inspire confidence given the implied high magnitude of beta.
Still, the empirical backdrop favors speculating on the long side — assuming of course that you recognize that all quantum-focused stocks are inherently risky. Essentially, investors have proven in prior bouts of extreme volatility that they’re willing to buy the dip.
Statistically, whenever QUBT stock lost up to 10% during a one-week period, there’s a 41.76% chance that by the end of the fourth week, it would yield a positive return. That’s noticeably worse than a coin toss, making a bullish position a truly risky transaction.
However, the fear-greed continuum often changes dramatically during periods of extreme market cycles. Following a weekly loss of 20% or worse, there’s a 62.5% chance that a month later, QUBT stock will be in positive territory. And during these positive responses, the average return clocks in at a stunning 47.33%.
Granted, there are far fewer instances of QUBT stock suffering weekly losses of 20% or more, as compared to 10% or smaller categorizations. Still, the overarching point is that unlike other quantum computing stocks, investors for whatever reason tend to buy the dips in QUBT.
By no means are there any guarantees that statistical trends will play out four weeks from now (which coincides with the options chain expiring Feb. 7). But if you were committed to betting on quantum computers, you might as well do so with the wind behind your back.
Deciphering the Best Trade Available
Assuming that the statistical winds favor the long speculator, investors will be looking for QUBT stock to potentially gain 47% from Friday’s close of $8.98. This comes out to a price target of $13.20 by the close of the Feb. 7 session.
To be sure, that’s an aggressive target, driven mostly by two outliers that saw returns of over 100%. Eliminating these metrics reveals a more realistic average return of 21.14%. Multiplying this rate against Friday’s close gives us an updated target of $10.88. Therefore, an aggressive yet still realistic short call target for a bull call spread would be $11.
Next, Barchart Premier members can access compelling call spreads filtered for short call (second leg) strikes of $11. For the options chain expiring Feb. 7, there are two transactions available: the 8/11 bull call spread and the 10/11.
Since we’re statistically confident that QUBT stock has a realistic chance of hitting $11 a month from now, it makes sense to consider the transaction with the highest payout. In this case, that would be the 10/11 call spread, with a max payout of 150%. Just as well, the positional risk is $40, which is reasonable all things considered.
Interestingly, market makers only rate the probability of profit for the 10/11 call spread as 37.9%. However, as we outlined above, the actual odds could be much better.
