Let’s not sugarcoat the harsh reality: space-based cellular broadband network provider AST SpaceMobile (NASDAQ: ASTS) dropped a stinker for its second-quarter earnings report disclosed last month. In the trailing 30 days, ASTS stock found itself down more than 12%, while in the past five sessions, the ticker gave up nearly 8% of its market value. Despite the terrible performance, intrepid speculators may be able to jump on a possible discount.
Before you get too excited, though, it’s important to appreciate the carnage. According to Google Finance’s summary sheet, AST SpaceMobile posted a substantial earnings-per-share miss of 77 cents below parity, whereas the consensus estimate called for a loss of 32 cents. Further, trailing revenue of $31.52 million underperformed expectations.
What contributed to the downturn in ASTS stock was the net loss of about $230.9 million during the scaling period, which, per Google, stoked short-term fundamental concerns. On a business note, delays and manufacturing bottlenecks threaten the deployment target of approximately 45 satellites by early 2027.
It’s also fair to point out that AST SpaceMobile stock suffers from a 60-month beta of 2.76. Essentially, this statistic means ASTS is about three times as volatile as the benchmark S&P 500 index. When it rains for the ticker, it pours — undoubtedly raising serious concerns among serious investors.
However, there’s another angle to the high beta. Whenever ASTS stock catches an upwave, the subsequent rally can be incredibly robust. For example, the period from the end of July through the period right before the Q2 disclosure saw ASTS skyrocket by nearly 22%. In the blink of an eye, the narrative — at least in terms of sentiment — can dramatically shift.
Given how circumstances are playing out technically and quantitatively, a mean reversion could possibly see AST SpaceMobile stock reach the psychologically significant $60 level by the October monthly options expiration. As such, the 55/60 bull call spread expiring Oct. 16 could be in play.
ASTS Stock Suffers from Low Odds, But There’s a Catch
On the surface, the above call spread for AST SpaceMobile stock appears palatable. Traders must pay a net debit (cash outlay) of $220 in the hopes that ASTS rises through the $60 second-leg strike at expiration. If it does, the maximum profit would be $280, a payout of over 127%.
There’s just one catch: Wall Street views the transaction as a low-odds affair.
First, there’s the breakeven price of $57.20. Using the standard Black-Scholes calculation, the probability of profit (breakeven) is only 46.1%. Second, OptionCharts’ Probability Distribution screener rates the chance of ASTS stock hitting the $60 strike at expiration at only 35.40%.
You can see the problem here. If you were to run this exact trade across multiple parallel universes, you would only win full profitability a little over a third of the time. And since you’d break even less than half of the time, the expected value (EV) of this options play would easily fall into negative territory.
Rationally, then, most financial experts would warn traders to either avoid this bet or place limited capital at risk. And because of the high beta, no model is going to provide a high level of confidence for this idea.
Nevertheless, you should be armed with the knowledge that all models of the unknown future are presuppositions. With the 55/60 bull spread, the presup is that AST SpaceMobile stock will undergo a random walk between now and the Oct. 16 expiration date. Another assumption is that the current implied volatility (IV) of 71.65% — relative to the historic volatility of 78.43% — will stay constant throughout this journey.
However, I dispute this presup (as I’m sure other professional market participants do). Again, the high beta is, in my opinion, a clear indicator that the probability of a random walk is incredibly low. At a rating of 2.76, you’re basically saying that ASTS stock is an “emotional” ticker. It will likely incur serious ebbs and flows, which suggests that the upcoming journey to expiration will be nonrandom.
Order Flow Imbalance Sets Up AST SpaceMobile Stock
Another reason why I’m not convinced about the supposed random walk framework is the order flow imbalance of ASTS stock. In the last 10 weeks, AST has printed only three positive weekly candlesticks, leading to an overall downward slope across the period.
I’m not suggesting that there’s anything inherently special about this 3-7-D quantitative sequence. It’s really just a static snapshot of AST SpaceMobile stock. But it’s what happens next that is intriguing. Since only 30% of the last candlesticks were positive, it’s arguably a fair assumption that at least some weak hands have been flushed out.
If that’s the case, a temptation exists among sophisticated market participants to bid up the relative discount. Fundamentally, you would likely assume that in order for ASTS stock to continue its downward trajectory, there would need to be additional bad news. The thing is, the aforementioned quant sequence structurally suggests that much of the bad news has already been baked in.
Under this presupposition, it may be easier to send ASTS stock higher due to less technical and mechanical resistance rather than to pile into the now-obvious bearish trade.
It’s still a risky proposition because my opinion about the future isn’t necessarily privileged over other ideas. However, the inductive case does seem to wink at AST bulls.
Looking at the Nonrandom Odds
Here’s the deal. Since the merger with a special purpose acquisition company (SPAC), AST SpaceMobile stock has flashed the 3-7-D signal a total of 44 times on a rolling basis. Of this tally, ASTS has exceeded the equivalent of the $60 strike 44 times on week 7, which is roughly equivalent to the Oct. 16 expiration date (based on the time of writing of Sep. 1).
If we were looking at the conditioned, empirical data, the probability of full profitability may be 52.3%. Granted, that’s not a superb win ratio. But if you run a theoretical EV calculation, you should win more money than you would lose, thanks to the combo of the win rate and the 127% max payout.
Does this mean the 55/60 bull spread is a must-buy? No, it’s still a speculative trade. Further, inductive reasoning is always subject to the black swan risk — there’s no guarantee that past trends will materialize in the future.
Ultimately, though, switching your presupposition from a random walk framework to one centered on nonrandomness opens up possibilities. If you find the analysis convincing, ASTS stock may be worth consideration.
