Quantum computing seems to be the rage these days, driving the investment narrative of sector players like IonQ (NYSE:IONQ). Despite the compelling backdrop of the advanced innovation, however, market participants should distinguish between IONQ stock as a long-term investment versus a short-term speculative trade. Right now, I’m interested in the latter but will keep an open mind about the former.
To be sure, the quantum computing industry is one that demonstrates much upside potential. According to McKinsey & Company, the underlying technology could create an ecosystem worth trillions of dollars within the next decade. Thanks to the exponential processing power of these revolutionary computers, they can execute functions that would take modern supercomputers practically an infinite amount of time.
At the same time, we can toss out the idea that at some point in the future, we’ll have our own personal quantum machines. That’s just not going to happen. While these computers require very little power per say, they require extreme controlled environments to operate. We’re talking about temperatures kept to near absolute zero. In other cases, such as with IonQ, quantum machines require ultra-high vacuum environments.
Not surprisingly, then, part of the problem with investments like IONQ stock is the underlying high capital requirements. Developing quantum hardware is expensive, not to mention the cost of keeping the hardware humming. Keep in mind that quantum computers are nothing like regular computers — you can’t just turn them off when you don’t need their processing power.
Instead, these machines require continuous, stable environments to maintain coherence for the underlying qubits. Restarting them or managing their functionality isn’t anywhere near the same as rebooting a standard PC.
While there are several reasons to be cautious about excessive exposure to entities like IONQ stock, under certain circumstances, they could offer traders significant upside. The caveat is that we’re dealing with high-risk, high-reward setups.
As a baseline, it’s generally prudent to avoid IONQ stock. Based on its pricing data since its public market debut, IONQ demonstrates a negative bias. A long position held for any given eight-week period has only a 45.5% chance of being profitable. Statistically, the best chance of success comes from holding a long position for one week. In such a scenario, you’re looking at a 50.46% success ratio.
However, under the dynamic parameters of extreme bullishness — defined as a one-week return of over 20% — the subsequent weeks’ probabilities shift favorably. Following this extreme-greed event, a long position held for eight weeks has a 56.25% chance of being profitable. Moreover, in the second week following extreme greed, the success ratio peaks at 68.75%.
To be completely transparent, such dynamic statistics involve much smaller datasets. Therefore, data distortion may materialize. Nevertheless, the underlying theory makes logical sense: IONQ stock responds aggressively to FOMO or the fear of missing out.
Put another way, people see their friends getting rich off quantum computing stocks and also want a piece of the pie. Those who react the quickest may see substantive rewards. This in turn sparks a fervor among their friends — and the cycle continues until it doesn’t.
Based on prior trends, it’s possible that IONQ stock could hit close to $28 over the next two weeks. Therefore, aggressive speculators may consider the 25/27 bull call spread expiring March 28. This trade involves buying the $25 call (at an ask of $265) and simultaneously selling the $27 call (at a $171 bid).
The cash outlay for the above transaction would be $94 for the chance to earn $106 if IONQ stock reaches or exceeds the short strike price of $27 at expiration. It’s a risky play but one that could be richly rewarding.
