Zinger Key Points
- Crypto miner TeraWulf popped sharply higher amid a resurgence in the digital asset ecosystem.
- Under similar circumstances, WULF stock has had a tendency of steadily rising following an initial upswing.
Cryptocurrencies have once again caught the bullish bug following a bout of sideways consolidation, naturally extending a helping hand to blockchain miners.
Among them, TeraWulf Inc WULF currently ranks among the top performers Friday. Based on similar circumstances of responding to prior extreme volatility, TeraWulf may see a slow but steady rise over the next few weeks, allowing traders to blueprint their options strategies.
Fundamentally, TeraWulf stands on relatively solid ground. As Needham analyst John Todaro pointed out last September, the company is one of the top miners for converting data center capacity to High-Performance Computing (HPC). As a Benzinga report mentioned, "HPC represents a high-margin, large, and growing revenue opportunity with long-term contracts that provide revenue and margin transparency longer term."
Investors should note that Friday's opening price of $6.21 already exceeds Todaro's earlier price target of $6. Nevertheless, the foundations that inspired the Buy rating — specifically robust growth (on a year-over-year basis) and a stable margin business with respect to operational efficiency — remain intact.
Therefore, risk-tolerant investors have reasonable confidence that TeraWulf shares may rise from here. However, the underlying nuances may play an important role in the actual strategy.
Deciphering Next Possible Moves For TeraWulf
Generally speaking, TeraWulf carries a slightly negative bias. Week to week, it's a coin toss as to whether the stock will post a positive or negative return. On a four-week basis, the odds slip to 45.95% that a position opened at the beginning of the period ends up in the black by the end of it.
Rather than calculating the tendencies of TeraWulf stochastically (that is, aggregating all events into a large dataset), investors can monitor behavioral changes based on extreme events. For example, in the business week ending Jan. 10, TeraWulf lost 16.8% of value. Over the past five years, there have been 37 times when the blockchain miner lost between 10% to 20% over a one-week period.
Out of these 37 incidences, TeraWulf stock posted positive returns by the end of the fourth subsequent week 22 times or 59.46%. During these positive outcomes, the median return clocks in at 18.46%. Stated differently, when calculating the company's tendencies dynamically — specifically in response to an extreme-fear event — investors tend to get unusually bullish.
However, the nuance is that the greatest single-week percentage lift relative to the anchor event (in this case, last Friday's closing price of $5.40) tends to materialize in the first week following the aberrant volatility. With the median first-week lift coming in at 7.84%, TeraWulf is currently well outpacing its statistical tendencies.
Nevertheless, the odds favor sustained bullishness to at least the options chain expiring Feb. 7. Assuming that TeraWulf stock follows a similar statistical trajectory in the second through fourth week following an extreme-fear event, shares could reach a price of around $7.23.
Using the Leverage of the Bull Call Spread
With President-elect Donald Trump soon to be inaugurated, it's natural to be extremely bullish about crypto and by logical deduction, TeraWulf’s stock. After all, Trump plans to issue an executive order to declare blockchain assets as a national priority.
However, as mentioned earlier, the statistical tendency following an extreme-fear event is for the biggest percentage lift to occur in the first week. From the second week to the end of the fourth, TeraWulf is only projected to rise about 9.85%. That doesn't really move the needle much with an open-market transaction.
On the other hand, a bull call spread uses the power of leverage to potentially deliver robust returns in a short time period. This options strategy involves buying a call option and simultaneously selling a call at a higher strike price for the same expiration date. The idea is for the stock to reach the short strike price. Further, the credit received from the short call helps partially offset the debit paid for the long call.
To be clear, an unexpected bout of volatility could see the trader lose the entire net debit paid to enter the trade. However, if TeraWulf reaches the desired short-strike target, the rewards can be enormous, depending on the specific transaction.
For aggressive traders, they may consider the 6/7 bull call spread (buy the $6 call, sell the $7 call) for the options chain expiring Feb. 7. At time of writing, the net debit required to enter the trade is $47 for the chance to earn a maximum of $53 or a payout of almost 113%.
That's a far cry from 9.85% over the same time period, making bull call spreads highly tempting for the sophisticated speculator.
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