While the cryptocurrency market has been struggling since early October, as history demonstrates, it’s usually not a good idea to stay indefinitely pessimistic on the sector’s prospects. Crypto miner and energy infrastructure specialist Hut 8 Corp (NASDAQ:HUT) appears to be articulating this viewpoint, with shares climbing over 5% on Tuesday. Still, even with the big bump, there could be additional gains to be extracted from HUT stock.
Fundamentally, bullish investors can take heart with a potential rebound brewing in the digital asset market. Though we’re not seeing the remarkable ascendancy that usually characterizes crypto rallies, technical analysts would argue that multiple benchmark assets have found a floor. Given the severe drop in value in recent months, even stabilization is a piece of good news that blockchain adherents will gladly take.
On the options order flow front, traders are expecting a massive move over the next several weeks for HUT stock. How do we know this? Multiple resources report that the “expected move” for the January 16 monthly options chain is about 18.8% in either direction. Based on the current market price, that would imply a dispersion between $43.04 and $62.96.
As you might imagine, the February-month expiration date is even worse, with an expected move exceeding 20%. Depending on how each individual source calculates their projections, the range could be around $35 to $65 or wider.
These numbers aren’t voodoo as they’re built from implied volatility (IV) using the Black-Scholes model. Without getting into too many mathematical complexities, IV is very much like the “whoosh” of a passing car relative to where you’re standing.
Based on the crack of the wind and the length of the aural resonance, you can infer the velocity of the vehicle. But without additional context, you can’t tell where exactly the driver is headed — especially in a major metropolitan area.
Still, with a little detective work, we’re going to narrow down this wide-as-heck dispersion to help even the odds.
Focusing On The Likely Range Of Outcomes For HUT Stock
When talking about IV and other options-related volatility metrics, it’s useful to know that these stats are residual metrics ultimately derived from actual order flows. In other words, when IV spikes higher, it indicates that traders are both speculating on and hedging against the underlying event occurring.
But let’s be brutally honest with each other. If I told you that HUT stock — which again is a crypto miner — is going to go up massively or down massively, you would probably respond with some kind of variant of “no kidding.”
I dare say that most of you would use much stronger language than that. Nevertheless, the point is that you would expect a little more specificity from an analysis. That’s why we need to think hierarchically.
Let us suppose that you took a single 10-week strand of HUT stock price data. Obviously, the return during that period won’t tell us anything about the probability of performance for the other weeks in the dataset. But imagine that you stacked hundreds of rolling 10-week trials of HUT onto a (fixed-time) distribution. Under this framework, the most frequent, consistent behaviors will yield a bulge in probability mass.
This bulge is risk geometry, which indicates the acceleration of buyer sentiment. More importantly, it also shows the transition where buyers are tempted to become sellers. With this information, we know statistically where we can push — and where we should back off.
Using a hierarchical framework, the 10-week returns of HUT stock can be arranged as a distributional curve, with outcomes landing between $47 and $52 (assuming an anchor price of $50.39, Monday’s close). Price clustering would likely occur at $48.80, which indicates a negative bias.
Still, the above assessment aggregates all trials since January 2019. We’re interested in the current quantitative signal, which is the 5-5-D sequence; that is, in the past 10 weeks ending Monday, the up and down week split was even but with an overall downward slope. In other words, the last two months featured net bearish trading.
Historically, extended pessimism tends to elicit contrarian sentiment. In this case, HUT stock over the next 10 weeks may range between $40 and $80, with price clustering likely to be predominant at around $53. Nevertheless, there are some interesting nuances in risk geometry that deserve closer inspection.
Targeting A Specific Trade For Hut 8
One of the other difficulties associated with the expected move calculations is that the dispersion is just that, a dispersion. It doesn’t tell you which figures are more likely to be true than the others. In other words, a Black-Scholes-derived calculation of IV effectively weighs the probability of HUT stock dropping to $35 exactly the same as the stock hitting $65 (due to the formulation’s collapsing of the concept of probability).
You don’t have to be a market genius to understand the absurdity of that claim. So, we don’t calculate risk geometry just so we can draw cool shapes. No, the underlying calculus that draws these shapes tells you which price outcomes are more likely to occur on a relative basis.
On that note, looking at the rate of probability decay over $10 intervals, the most risk-reward-balanced trade revolve around the $60 strike price. Consider that between $50 and $60, probability density declines by 33.21%. Between $60 and $70, density drops by 67.78%.
Stated differently, probability decay exponentially accelerates beyond the $60 price point. Therefore, by capping our reward at $60 in a bid to discount the premium we’ll pay to speculate up to $60, we would effectively be buying the forward outcome that is most likely to materialize.
With that said, I believe the 55/60 bull call spread expiring Feb. 20, 2026, is in play. Not only is there a decent chance for HUT stock to trigger the $60 strike at expiration, the breakeven price is at an ambitious but arguably realistic $56.75.
If the speculation pans out, you’re looking at a payout of nearly 186%.
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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