Options Alert: Why Traders Must Exercise Caution with D-Wave Quantum (QBTS)

By Josh Enomto

The fundamentals don’t matter… until they do. Unfortunately for overeager speculators, many learned this lesson the hard way when quantum computing enterprises such as D-Wave Quantum (QBTS) suffered a catastrophic loss during the midweek session. I won’t bother with the news, which has been covered incessantly.

Instead, the unique angle I’d like to bring to the table is the statistical framework. Put another way, is there a mathematical justification to buy QBTS stock in the hopes of picking up an extreme value play? Here, the empirical data brings a nuanced picture to the forefront.

Generally speaking, QBTS stock carries a decidedly negative bias. In terms of weekly performance (measured as the percentage difference between Monday’s open and Friday’s close), QBTS sees a positive week 41.78% of the time. So, if you bet on QBTS at the start of any given Monday, by Friday, you’re more likely than not to be underwater.

This statistic is essentially calculated stochastically — it’s the “Newtonian” rhythm of QBTS stock under normal market conditions. But when D-Wave is under extreme pressure (such as the present juncture), the market’s response could be elevated.

Stated differently, investors may need “Einsteinian” math to accommodate the aberrant fluctuation in the fear-greed continuum.

QBTS Stock Speculators Avoid Extreme Erosions

Since its public market debut in December 2020, QBTS stock has posted 41 weeks in which it lost 10% of value or more. Out of this figure, 18 weeks — or 43.9% of the time — witnessed a positive return four weeks out. Granted, the average return during these bullish responses is a robust 91%. Nevertheless, the odds of long-side success is still worse than a coin toss.

At the moment, QBTS stock is on pace to record a loss between 20% to 30% for the business week ending Jan. 10. If so, the odds that D-Wave bounce higher a month from now are rather slim. Whenever QBTS suffered the aforementioned weekly loss, its post-four-week success ratio dipped to 33.33%.

Now, it must be said that we’re talking about small numbers here. There have only been nine times when QBTS stock incurred a weekly loss between 20% and 30%. Still, the overall trend cannot be denied. Whenever D-Wave faces extreme volatility, market behaviors change in response — but not in a manner that beats coin-toss odds.

For conservative investors, you may be better off waiting until the selloff completely dies down before placing a wager.

Play the Numbers Game

Now, for the extreme speculator, a bear put spread could make good use of some simple math. Let’s assume that QBTS stock closes this Friday at $6.80, which is 20% down from this past Monday’s open. As we discussed, there’s possibly a 66.67% chance that QBTS will be down four weeks later, which coincides with the options chain expiring Feb. 7.

With U.S. markets closed today in memory of President Jimmy Carter, D-Wave Quantum stock traded on NYSE could see some price arbitrage from its Frankfurt-traded shares, which, at this writing, are up 5.6% in mid-day European trading on Thursday. 

On negative instances four weeks following D-Wave incurring a 20% to 30% weekly loss, the average equity loss comes out to 34.15%. Again, should QBTS close at $6.80, statistical trends suggest that the security could drop to $4.49 by the aforementioned expiration date.

Therefore, intrepid speculators may consider buying bear put spreads with the short strike price (second leg) of $4.50. The long strike (first leg) can be left to the trader’s discretion, although as of Wednesday’s close, the 5.50/4.50 bear put spread (buy the $5.50 put, sell the $4.50 put) offers the biggest maximum payout at 81.82%.

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.

Josh Enomoto is currently rated #393 out of 30,477 financial bloggers on TipRanks with an average 18.8% return on his recommendations. Covering the hottest topics on Wall Street from initial public offerings to cryptocurrencies, you can also find Josh's work on InvestorPlace, Benzinga, and Emerging Growth. He has appeared as a frequent guest expert on CGTN America as well.