It's impossible to be happy when your competitors ink a potentially groundbreaking deal, as satellite designer and manufacturer AST SpaceMobile, Inc. (NASDAQ:ASTS) is finding out firsthand. With SpaceX and EchoStar Corp. (NASDAQ:SATS) signing a spectrum agreement valued at approximately $17 billion, AST found itself as the third wheel. Subsequently, ASTS stock dropped around 4% in late afternoon trading on Monday. Still, this fallout could be an opportunity for contrarian options speculators.
At first glance, circumstances look unpleasant for AST. Under the SpaceX-EchoStar deal, the terms consist of up to $8.5 billion in cash and up to $8.5 billion in the former entity's stock. In addition, the agreement provides for SpaceX to fund an aggregate of approximately $2 billion of cash interest payments payable on EchoStar debt through November 2027.
If that wasn't enough, the deal will also allow the two entities to enter into a long-term commercial agreement, allowing EchoStar's Boost Mobile subscribers to access SpaceX's Starlink Direct to Cell service. Because AST also provides space-based cellular broadband networks, the news of its mainline competitors generating significant progress sank ASTS stock.
Despite the terrible optics, there could be a chance — at least in the near term — to extract some profits from a potential contrarian move. One critical factor to keep in mind is the high short interest undergirding ASTS stock. At the moment, this metric stands at 17.7% of the float. As well, the short interest ratio stands at 4.37 days to cover. Essentially, the bears will need about a week to unwind their short positions.
Structurally, a short position is initiated when speculators sell to open. By logical deduction, exiting the position requires buying to close — the opposite geometry to when typical retail investors close their books.
Subsequently, if ASTS stock unexpectedly pops, the upside surge can create a panic among the bears, sparking the so-called short squeeze. It's not a guaranteed outcome but should it materialize, the outcome could be powerful.
Using Statistical Validation to Augment the Bullish Case for ASTS Stock
Buying low and selling high is a common trope among retail investors. However, what the adage doesn't tell you is which ideas are worth pursuing — and which ones to avoid. If we're being logical, then it's impossible that every single volatile name is an upside opportunity. Otherwise, there would be no such thing as a bear market.
Even with evidence — such as the prospect of a short squeeze — the problem with virtually all investment-related hypotheses is that they represent in-sample arguments. In other words, the claim and the evidence to support the claim originate from the same pool of data.
For example, if you were tasked with proving that Spider-Man is a real-life entity, you can't rely on Marvel Comics' literature to validate his existence. That would be an in-sample "validation" and therefore circular. What you would need (at the very least) is an out-of-sample test to independently verify the claim.
Subsequently, the red-pill moment comes when you realize that fundamental and technical analysis really isn't analysis the way that it's usually practiced; instead, they're historical observations integrated with forward-looking presuppositions.
That's not to say that in-sample assertions are themselves flawed; they just need to be statistically validated.
In the past 10 weeks (not inclusive of Monday's session), ASTS stock has printed three up weeks and seven down weeks. Overall, the trajectory throughout this period was downward. For classification, we can label this sequence of pricing behaviors as 3-7-D.
Using in-sample data (which runs from December 2020 to July 2025), ASTS stock tends to drift higher during the first eight weeks following the flashing of the signal before heading lower. This conditional skew is positively misaligned from the aggregate or baseline skew — or the expected drift assuming no mispricing.
However, we can't just leave this argument as is because the assertion would be exclusively in-sample. To better understand the probability of causality, I ran an out-of-sample test, isolating the impact of the 3-7-D sequence from ASTS' public market debut through December 2023.
As it turns out, in prior sentiment regimes, the sequence is definitively a reversal signal. During the in-sample regime, the bullish tail is a bit shorter. Therefore, targeting the October options chain may be prudent.
Betting on a (Temporary) Comeback
Based on the market intelligence above, the trade that arguably makes the most sense is the 38/43 bull call spread expiring Oct. 17. This transaction involves buying the $38 call and simultaneously selling the $43 call, for a net debit paid of $235 (the most that can be lost in the trade).
Should ASTS stock rise through the short strike price ($43) at expiration, the maximum profit is $265, a payout of nearly 113%. Breakeven comes in at $40.35, which should be a very manageable target, assuming that the implications of the 3-7-D pan out as expected.
To be sure, the one wrinkle is the short squeeze. If the phenomenon materializes, then ASTS stock is liable to skyrocket. If so, the aforementioned bull spread would likely become a massive opportunity cost, as the maximum upside is capped at the short strike price.
For those who want to speculate on the short squeeze, a higher second leg may be warranted. The problem, though, is that short squeezes are wildly unpredictable. With the 38/43 bull spread, the strategy is based off median expectations and statistical validations of the 3-7-D sequence.
The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.
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