Investment Alert: Buy IONQ (IONQ) Sell Strike 13.50 Calls July 14 Expiration
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
Forget AI, quantum computing is coming fast and furiously next. One of the leaders in the space is a company called IONQ that debuted on the public markets after merging with a SPAC sponsored by dMY Technology Group.
Unlike the vast majority of SPACs that failed to live up to the hype, IONQ appears to be delivering on its promise to revolutionize modern computing.
Shares of IONQ hovered around lows of $3.50 at the start of the year but has since gone on a massive run to $13.50 per share in the last two quarters. Is this the first inning or too late to buy? It doesn’t matter with the strategy we’re about to share.
- IONQ is a leading developer of quantum computers, is positioned in a market poised to grow massively, and has a strong team and partnerships.
- The stock is already up significantly year-to-date and demand for calls is high.
- High call implied volatilities mean that covered call sellers can potentially enjoy significant monthly returns, even if the stock does not move higher.
What Makes IONQ Special?
If you’re not familiar with IONQ, here’s the high level digest:
- Leading developer of quantum computers. IONQ has developed a unique quantum computing platform that uses trapped ions, which are atoms that have been stripped of some of their electrons. This platform is claimed to be more scalable and error-resistant than other quantum computing platforms.
- Massive market opportunity. According to a report by Grand View Research, the global quantum computing market is expected to grow from $1.2 billion in 2022 to $82.4 billion by 2028, driven by the increasing demand for quantum computers in industries ranging from finance to healthcare, and materials science.
- Strong team of experienced scientists and engineers. The company’s leadership team includes David Wineland, who is a Nobel laureate in physics, and Chris Monroe, who is a former director of the National Institute of Standards and Technology’s quantum information program.
- Partnerships with major companies. These partnerships include collaborations with Google, Microsoft, and Lockheed Martin, providing IonQ access to resources and expertise that can help it accelerate its development and commercialization efforts.
Is 17% Per Month Possible?
One way to play IONQ is to simply buy the stock and speculate that it will go higher. Another is to lock in 8.5% in premium from covered calls every 14-16 days. That’s what’s on offer when buying IONQ stock and selling calls at-the-money currently.
A trader who purchases IONQ at $13.50 and sells calls at strike 13.50 for July 14 expiration can currently lock in $1.15 in premium for an 8.5% return… in less than 2 weeks.
If you’re not familiar with selling calls, that premium is extraordinarily high. By way of contrast, Berkshire Hathaway calls at-the-money over the same duration yield less than 1%.
So the return is really high but it’s correlated heavily with high share price volatility. Recently, IONQ shares have been soaring and that has led to massive demand for call buying, which in turn has pumped up premiums. And that’s where the opportunity lies. As implied volatilities have soared, covered call traders can sell those IV spikes and lock in attractive premiums.
If the share price stays above $13.50 over the next couple of weeks, the return will be 8.5%, corresponding to a monthly return of about 17% if repeated. Should the share price fall, the position won’t be worse off unless the stock falls by more than 8.5%. Of course that’s possible but then more calls could be sold to ultimately reduce the cost basis over time to zero.