Rigetti Computing Could See Wild Price Swings This Week - Rigetti Computing (NASDAQ:RGTI)

After ending last year on an incredibly high note, quantum computing specialist Rigetti Computing Inc. RGTI — which focuses on superconducting processors and cloud-based services — is starting the new year on the wrong foot.

Since the beginning of January, RGTI stock finds itself down around 47%. While the long-term narrative lacks clarity, RGTI could potentially pop this week due to an air pocket floating within bearish waters.

To be clear, circumstances don't look auspicious for Rigetti stakeholders. From an investment perspective, the bears arguably offer a more compelling argument. The troubles could be tied to Nvidia Corp. NVDA CEO Jensen Huang, who poured cold water on the quantum computing narrative. In January, the head executive remarked that the practical utility of the innovation could be out 15 to 30 years.

Of course, experts in the field fired back, noting real-world use cases of quantum computers. Still, the industry rebuttals did little to stop the implosion of RGTI stock and its ilk. Following a brief bounce-back, broader fundamental concerns — including inflation, tariffs and geopolitical instability — hurt the tech ecosystem.

Financially, Rigetti needs to justify its blisteringly hot sales multiple and that's where investors may become hesitant. Scaling quantum computers into sustainable businesses has always been a question hanging over the sector. While there's potential for the industry to be worth trillions within the next 10 years, some experts are only willing to project a valuation in the billions.

That's a massive gap, demonstrating the uncertainty of Rigetti stock and the underlying industry. Nevertheless, a big pop this week isn't impossible — and it might even be likely.

RGTI Stock Faces a High-Stakes Earnings Test

Later this week on Wednesday, Rigetti is scheduled to disclose its fourth-quarter earnings report following the closing bell. In fairness, the company's last three earnings reports saw revenue miss expectations. However, a strong showing this time around combined with encouraging guidance could do wonders for RGTI stock.

Interestingly, last week's closing price of $8.46 capped off three consecutive down weeks for Rigetti. Historically, such a negative streak is rare, materializing only 15 times since the company’s public market debut. What's more, 12 of these streaks in the past have resulted in an upswing in the fourth week (which in this circumstance is this week). Further, the median return assuming the positive scenario is 5.26%.

To be completely upfront, the idea of betting on Rigetti stock is ordinarily treacherous. As a baseline, the odds that a position entered at the beginning of the week will be profitable by the end is less than 43%. Under the dynamic condition of a weekly loss exceeding 20% (as happened last week), the subsequent week's long odds fall to 27.3%.

Nevertheless, the earnings week presents a wrinkle that must be accounted for. The market makers are doing just that, with implied volatility — a measurement of expected price movement — clocking in higher for Friday's options chain than for other forward-looking expiration dates.

Plus, there's another wrinkle to consider: Rigetti stock has high short interest of 22.6%. Ordinarily, traders taking bearish bets represents a pessimistic sign. Yet when the target security moves in the opposite direction — that is to say northward — panicked bears seeking to cover their position must acquire shares. Known as a short squeeze, this upside panic may result in an explosive move.

A Daring Trade for This Week Only

To reiterate, the long-term trajectory of the stock is questionable at best. After last year’s run, the low-hanging fruit may have been plucked—to Huang’s point.

However, for this week, the most intrepid speculators have a chance to scalp some big profits. A potential (but temporary) reversal amid a high-stakes earnings test could be in the cards.

For those that believe Rigetti stock is due for a dead-cat bounce, the 7.50/8.50 bull call spread for this Friday's expiration date could be enticing. This multi-leg options strategy calls for buying the $7.50 call (at a $79 ask) and simultaneously selling the $8.50 call (at a $30 bid). The hope is for Rigetti’s stock to reach or exceed the $8.50 short-strike price at expiration.

This transaction is also attractive because traders use the proceeds from the short call to partially offset the debit paid of the long call. At time of writing, the net debit required is $49, which is the most that can be lost in the trade. On the other hand, the maximum reward is $51, a payout of 104%.

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