Fundamentally, it’s not hard to see why D-Wave Quantum (QBTS) and other quantum computing specialists have witnessed a significant surge in value. The underlying innovation can perform rapid-fire calculations that traditional supercomputers would take practically an eternity to solve. At the same time, the enthusiasm for QBTS stock appears overstretched. Therefore, the current framework potentially calls for a bearish options strategy.
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To clarify, while I’m near-term bearish on QBTS stock, I’m not calling for a direct short position. That would be reckless, given the robust enthusiasm for quantum computers. In addition, the burgeoning industry offers myriad relevancies, opening doors that were previously closed due to lack of capacity. Now, previously deemed impossible tasks could possibly be handled with comparative ease.
Still, skeptical analysts have warned not to jump on the bandwagon. While the sector and its promised innovations could radically alter the technology ecosystem, there are kinks to be worked out. Plus, QBTS stock has gone parabolic in a short period of time. A healthy correction is only natural, and a capped-risk bearish options strategy may extract a “negative” value.
Fundamental Concerns Rattle QBTS Stock
As stated earlier, there are fundamental reasons why QBTS stock and similar entities have skyrocketed recently. Broadly, the raw processing power of quantum computers ranks lightyears ahead of contemporary supercomputers. Not only that, Alphabet’s (GOOGL) Google recently revealed its Willow quantum chips, demonstrating the potential of this astounding invention. Naturally, enterprises want a piece of the pie — call it the fear of missing out (FOMO) within the corporate class.
However, the financials of these quantum computing entities are vague. Let’s take a look at D-Wave Quantum. In 2022, the company posted $7.17 million in sales. The following year, it rang up $8.76 million, or 22.2% up. On a trailing 12-month (TTM) basis, it’s looking at only $9.42 million or a pedestrian growth rate of 7.53%.
Granted, circumstances can always change for the better in the future. Still, one can’t help but come away with the impression that with a price-to-sales ratio of 168x, investors are paying quite the premium for QBTS stock right now. Not only that, in the third quarter of 2024, revenue only reached $1.87 million, down almost 27% against the year-ago quarter. With a trend like that, D-Wave requires significant faith.
Don’t Ignore the Technical Warnings Either
At a cursory glance at TipRanks’ Technical Sentiment indicator, one might come away with the impression that QBTS stock is a Buy. After all, that was the overall consensus following the conclusion of last week. However, the bullish signals mostly stem from moving average indicators, which represent a retroactive framework. Basically, these averages are only pointing northward because that has been the prevailing trend in the last few months.
However, from common experience, securities don’t just drive higher without eventually encountering a corrective spell. At some point, the fortunate bulls that took long positions early will want to cash in at least some of their paper gains. When that happens, there’s a strong chance that this action could set off a panic, leading other bulls to jump ship.
The other argument is statistical. In the final full week of 2024, QBTS stock returned 228.15% from four weeks prior. There have only been seven instances when QBTS returned 200% or more over a four-week period, with three of these instances happening this past November through December. The last time such 200%-plus returns materialized, D-Wave eventually corrected. The same scenario can easily play out again.
Deciphering a Bear Put Spread to Trade
For those who are convinced that QBTS stock is due for a downturn, an options strategy called the Bear Put Spread may be appropriate. This transaction calls for buying a Put option and simultaneously selling a Put at a lower strike price for the same expiration date. The idea is to use the credit received from the Short Put to partially offset the debit paid for the Long Put, with the goal that the stock will fall to the short strike.
However, deciphering which Bear Put Spread to buy can be challenging. Looking at the chart, QBTS stock tried on three occasions since December 18 to blow past the $10 level but failed. On the other hand, there have been two occasions where $8 acted as support, both in December. Therefore, the 10/8 Bear Put Spread (buy the $10 Put, sell the $8 Put) for the options chain expiring Jan. 31 could be attractive.
This transaction would provide about a month for the potential correction to materialize. Given the triple failures at the $10 level, a downturn could come sooner rather than later. Further, $8 represents a natural downside target before the bulls move in to provide support.
Is QBTS Stock a Buy, According to Analysts?
Turning to Wall Street, QBTS stock has a Strong Buy consensus rating based on five Buys, no Holds, and zero Sell ratings. The average QBTS stock price target is $4.19, implying 56.13% downside risk.
The Takeaway: Hedge Against the OBTS Hype Train with a Bear Put Spread
D-Wave Quantum’s innovation is impressive, but the stock’s rapid ascent suggests a breather is overdue. With financials lagging behind the hype and technical indicators flashing caution, a Bear Put Spread offers a balanced way to hedge against the likely pullback while limiting downside risk.
This quick strategy acknowledges the long-term promise of quantum computing but respects the near-term realities of market cycles. By positioning for a correction, traders can extract value from overstretched enthusiasm without fully stepping away from this transformative sector.
