Thanks to soaring competition in the space economy — thanks in large part to the initial public offering of SpaceX (NASDAQ: SPCX) — it’s been a rough ride for sector players like AST SpaceMobile (NASDAQ: ASTS). However, recent activity in ASTS stock has demonstrated that the satellite designer and manufacturer is still very much in the game.
To be fair, it’s difficult to ignore the overall picture. On a year-to-date basis, ASTS stock has lost nearly 6%. In the past six months, the ticker gave up almost 33% of market value. Such terrible stats have naturally caused many retail traders to sit on the sidelines. At the same, we can’t overlook the trailing-five-day performance (as of the end of Aug. 5) of over 20%.
In hindsight, the upswing may not have been that surprising. We’re still talking about a viable space business in a fast-growing industry. As such, the wave of weak hands leaving the market may have triggered rules-based algorithms to bid up ASTS stock. In fact, that was my argument when I wrote about AST SpaceMobile for another publication.
Now, because the ticker has bounced back so strongly, I’m not entirely sure that there’s another 20% rally left in the tank. However, with ASTS stock achingly close to the psychological price target of $70, I do believe this level may be in play.
Of course, at the time-of-writing price of $68.38, a move to $70 is only 2.37% up. That’s not something to get too excited about. But with the leverage of options — specifically a debit spread — that modest swing may translate to a much more robust reward.
As a speculative idea, I’m looking at the near-term 68/70 bull call spread expiring Aug. 21. Should AST SpaceMobile stock rise through the $70 strike at expiration, the $110 net debit would lead to a $90 profit or a maximum payout of nearly 82%.
Interestingly, the breakeven price for the above call spread is $69.10 and Wall Street isn’t that optimistic that the trade will end in a draw. In fact, the probability of profit is only 48.3%. However, I think there’s an alternative way to calculate these odds.
Understanding the Limitations of Black-Scholes for ASTS Stock
There’s no denying that options math is incredibly complicated. When you hold a common stock, you’re holding a static slice of current equity. In contrast, when you acquire an options contract, you’re holding a time-bound, asymmetric claim on a future probability distribution.
In other words, unlike an equity, which gives you a static ownership slice of an asset’s present value, an option gives you a decaying, conditional contract that monetizes volatility, time and trajectory. You aren’t paying for what the company is today — you’re paying for a leveraged bet on where its price path might land before the clock runs out.
A simple way to look at this confusing picture is that the options market has to have a uniform mechanism to determine what the future perceived risk of that option is and then work backwards to assign you a “fair price” today. However, “perceived risk” is doing a lot of work here.
As mentioned earlier, Wall Street gives us a probability of profit of 48.3% that AST SpaceMobile stock will break even at $69.10 on Aug. 21. But if nobody knows what the future is, how did the market calculate 48.3% odds?
To make a long story short, Black-Scholes assumes that ASTS stock will undergo a random walk between now and the Aug. 21 expiration date. During this random walk, the chance that the ticker will reach $69.10 at expiration is 48.3%.
Here’s the part that a lot of beginner retail traders don’t often realize: you don’t have to accept Black-Scholes’ implied probability figures as gospel truth. It’s simply a presupposition. Imagine a street preacher corners you and declares that there are only two places you go when you pass on. This is a presupposition — we simply don’t know what lies beyond the paradigm of life, if anything.
Thus, if we have an alternative model — and we happen to give more weight to its presupposition than the one articulated by Black-Scholes — we may be able to uncover a favorable mispricing. That’s my argument for ASTS stock.
Eliciting a Nonrandom Walk for AST SpaceMobile Stock
It’s not that I’m arguing against Black-Scholes for the sake of it. Rather, I’m not entirely convinced that ASTS stock will traverse along a random walk. If anything, the data supports the idea of a nonrandom walk. If so, we need a model that reflects this reality as opposed to Black-Scholes’ artificial construct.
Why do I believe that AST SpaceMobile stock will undergo a nonrandom walk? It’s because of its order flow imbalance. In the last 10 weeks, ASTS stock has only printed three up weeks, leading to a downward slope. While there’s nothing inherently special about this 3-7-D quant signal, whenever it has appeared in the technical charts, ASTS has typically enjoyed an above-average performance.
Before we get too far ahead of ourselves, I’m not guaranteeing that the same trend will materialize in the future. All inductive models face the possibility of running into the black swan risk. A model can consistently work but then the market just might not cooperate. That’s the overriding danger in any options trade.
Having said that, under 3-7-D conditions, ASTS stock tends to rise to an equivalent median endpoint of $70 at the end of week 2 (which roughly coincides with the Aug. 21 expiration date). So, the idea is that if you consider the 68/70 bull call spread now, ASTS may have a 50/50 shot at triggering the second-leg strike price at expiration.
However, the mathematically intriguing point is the $69.10 breakeven price. Again, Wall Street believes this threshold only has a 48.3% chance of being triggered. I see things differently, though.
Of the 44 times that the 3-7-D signal has flashed, ASTS stock has reached the equivalent of the $69.10 breakeven price a total of 27 times at the end of week 2. Based on conditional, observed data, the probability of profit may be 61.4%.
Earnings Volatility to Consider
It should be noted that AST SpaceMobile will soon release its quarterly earnings report on Aug. 10. With implied volatility (IV) currently running at nearly 117%, traders should expect potentially large swings. If you’re feeling particularly optimistic about the company’s results, you may decide to raise the second-leg strike of your debit spread.
I’m not going to sit here and pretend that I know what the results are going to be like. I checked Polymarket in an attempt to discover what the consensus opinion was. Unfortunately, I didn’t find any wagers placed on AST’s projected numbers. Even if we did, it wouldn’t necessarily reflect on how the market may perceive ASTS stock.
With all that said, if we were to look strictly at the implied performance following the 3-7-D signal, the median endpoint price of AST SpaceMobile stock on Aug. 21 is forecasted to be $70. It’s not a guarantee and like any model, there are flaws in my approach. However, if I had to guess where ASTS may end up, I would be tempted to follow where the stock has historically landed.
