From a bird’s-eye view, Arqit Quantum (ARQQ) offers a compelling business. Specializing in quantum encryption and cybersecurity solutions, Arqit primarily focuses on developing and deploying a quantum-safe encryption platform. This is designed to protect sensitive data and communications against both current and future cyberthreats. Given the ongoing threat environment, ARQQ stock screams relevance.

Unfortunately, relevance alone offers no guarantee that the underlying investment will be successful. And that really is the bottom line for ARQQ stock. There’s no denying that the equity enjoyed a stratospheric run during the quantum computing mega-rally. In October, shares could be had for less than five bucks. At one point, ARQQ was approaching $50.

However, in just a matter of days, the narrative appears to be in freefall. On Monday, ARQQ stock gave up more than 23% of market value. Over the past five days, the equity hemorrhaged more than 57%. All of December’s gains and then some have evaporated. Based on afterhours sentiment, the selloff might not be over yet.

Still, with such extreme pessimism comes the notion that ARQQ stock could be an extreme deep-value play. From what the experts are saying, quantum computers are the future. Over time, legacy tech giants could consider buying up strategic stakes in quantum specialists.

While a very real possibility, investors also need to respect the prevailing sentiment of the market; in other words, to not fight the tape. For ARQQ stock in particular, traders may want to sit this one out until the ugliness truly fades.

ARQQ Stock Suffers from Worrying Negative Bias

With ARQQ stock incurring an extreme loss of value over a short period of time, most investors avoided the downcycle. Nevertheless, there were quite a few speculators placing bullish wagers on Arqit call options. The idea seems to be that ARQQ could potentially perform a dead-cat bounce, allowing traders to scalp some quick profits.

However, going through with this plan is risky to say the least. Primarily, the major impediment is that ARQQ stock suffers from a downward bias. Since its public market debut, only about 38% of any given four-week period (beginning Monday and ending Friday) have resulted in a positive return. That means that if you invest in ARQQ stock, one month later, you would likely be down in your position.

That already would put arguably most people off from Arqit. Making matters worse, speculators rarely buy the dips in ARQQ. Whenever shares lose 20% of value or more in a week, there’s only a 35.71% chance that by the fourth subsequent week, ARQQ is in the black. Stated differently, the equity suffers from a negative bias, no matter what’s happening with the stock.

With such a poor backdrop, there’s really no incentive to speculate on the long side — you’re simply dealing with severe statistical headwinds. At the same time, I’m not a big fan of going short ARQQ stock. Yes, it’s statistically likelier to tumble. Unfortunately, the premiums on the puts are onerously high, making the positional risk on short transactions unappealing.

Options Pricing Dilemma Clouds Trading Decision

Last Friday, ARQQ stock closed at just under $22, implying that by the fourth subsequent week (or Feb. 7), shares could either rise to $28.33 or fall to $17.62. These projections are based on the fact that the median positive return following a weekly loss of 20% or greater stands at 29.23%, while the median loss lands at 19.62%.

But because Monday also saw a significantly volatile event, ARQQ is already down to $16.77. Based on these updated figures, ARQQ could rise to $21.67 or fall to $13.48 by the close of Feb. 7. Since there’s a greater chance of losing money in Arqit due to its negative bias, buying put options might seem like a prudent (albeit highly speculative) strategy.

However, puts for the next available February options chain are expensive. At the moment, the $15 put (which is out the money) carries a hefty ask of $3.10. That means ARQQ stock would need to fall to $11.90 for the option to break even on intrinsic value. Statistically, such an outcome is unlikely.

Calls for the same options chain are also expensive, with the $17.50 call commanding an ask of $3.80. That would require ARQQ stock to hit $21.30 to break even on intrinsic value, which statistically features very low odds. Therefore, with no compelling options (literally and figuratively), it’s probably best to head for the sidelines.