While satellite designer and manufacturer AST SpaceMobile Inc (NASDAQ:ASTS) has been one of the strongest performers this year, it’s also fair to point out that the highly kinetic movements of ASTS stock can throw many options traders off. Essentially, ASTS is non-ergodic to the extreme. Colloquially, this means that the actual return may not always match the expected average return.
With options trading, non-ergodicity often rears its ugly head because of elements such as enhanced volatility and expiration dates. In this case, if ASTS stock enters a corrective period — even within the context of a broader bull market — it can be catastrophic for a specifically defined options trade. That can be quite cruel, especially because the underlying company is making clear fundamental progress.
Why, then, is ASTS stock tumbling? Some of the market pessimism could be tied to insider selling. In December, equity exposure trimming has been dominated by sellers, both in terms of frequency and dollar amount. It’s also quite possible that, due to the end of the year coming up, major stakeholders sold shares for tax purposes.
Now, the common argument within the financial publication ecosystem is that, because AST SpaceMobile features a strong business — at least in terms of achieving satellite launch milestones and securing important contracts — its security is contextually undervalued. The thing is, over a long enough time horizon, such reasoning can coincidentally come true, especially in a bull market. However, this common argument is also an example of petitio principii or begging the question.
Basically, the conclusion (that ASTS stock will likely rise higher) is smuggled into the premise (that the market is not properly pricing in AST SpaceMobile’s growth potential). In effect, the premise does all the heavy lifting of the argument yet it is also this component that receives little to no interrogation.
After all, how do the various authors know that ASTS stock is truly mispriced? This is the question that I’d like to address.
Identifying The Risk Geometry Of ASTS Stock To Make Better Trading Decisions
As you might imagine, I also believe that ASTS stock is currently mispriced. However, that’s a bold statement and it cannot just be granted authority by fiat. Being the analyst at this hour, I need to present a sound argument for the alleged mispricing.
First, we must quantify what we mean by mispricing in order to measure it and to assign probabilities. Using terms like “undervalued” or “strong opportunity” are rhetorical embellishments but they’re unbounded and cannot be quantified. Price action is also unbounded because ASTS stock can theoretically go to infinity. This is the reason why I discretize price action into bounded categories of “up weeks” and “down weeks.”
Second, it’s critical to think in hierarchical frameworks. If we took a single 10-week strand of ASTS stock price data, the return during this period won’t tell us anything about the probability of performance of the other weeks in the dataset. But what if we took hundreds of rolling 10-week trials and stacked them in a fixed-time distribution? At that point, the most frequent, consistent behaviors will create bulges in probability mass.
These bulges represent risk geometry, which in part shows the ascending bullish emotions of market buyers. More importantly, risk geometry reveals the transition point where buyers are tempted to become sellers. By calculating this structure, we know where we can push — and where we should back off.
Under normal circumstances, 10-week returns from the current price (roughly $72) would place peak probability density at around $71.75, thus indicating a negative bias. However, the mispricing comes from the fact that in the trailing 10 weeks, ASTS stock has printed a 4-6-D sequence. In the aforementioned period, ASTS only generated four up weeks, leading to a downward slope.
From this setup, the forward 10-week range would likely land between $62 and $92, with peak probability density materializing between $76 and $81. Effectively, that’s a structural arbitrage of approximately 8.71%.
Probability Decay Defines The Trade Idea
With the market intelligence above, the one trade that stands out to me is the 75/80 bull call spread expiring Feb. 20, 2026. This wager requires a net debit paid of $210, which is also the most that can be lost. Should ASTS stock rise through the $80 strike at expiration, the maximum profit clocks in at $290, a payout of over 138%. Breakeven lands at $77.10, making the trade even more palatable.
Of course, the main reason why I like the 75/80 call spread is the peak probability density concept. Over the next 10 weeks, ASTS stock should most likely traverse the range between $76 through $81. It’s not that prices beyond this range are not achievable; it’s just these prices are less likely to materialize due to the acceleration of probability decay.
Consider that between $80 and $85, probability density drops by 71.34%. Between $85 and $90, density again plunges by 92.18%. Put another way, it doesn’t make much sense to buy exposure to outcomes beyond $85 if we are convinced that ASTS stock won’t get there.
Subsequently, the bull call spread allows us to buy the premiums associated with the probability curve that makes sense to us while allowing us to sell the rest of the curve that is less likely to materialize. This way, we buy reality and sell the fantasy.
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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