ASTS Soars 50%: Bear Call Spread to Short?

$AST SpaceMobile, Inc.(ASTS)$ surged 50.7% on Thursday, hitting an all-time high after the company reported earnings in line with expectations, and confirmed a commercial satellite launch in the coming weeks—an important catalyst.

CEO Abel Avellan said on the earnings call:

"We’re transitioning from R&D to full production and commercialization of our space-based cellular broadband network. Our technology is proven, patented, and validated. Our business ecosystem is established and growing. We have the funding to achieve our near-term goals and generate initial revenue. Our business is accelerating."

With the launch of its first commercial satellites, the company aims to offer satellite-to-mobile service across nearly 100% of the continental U.S. $AT&T Inc(T)$ and $Verizon(VZ)$ test users will begin initial service in a few months.

Among the Wall Street analysts raising their price targets on Thursday, UBS increased its target from $13 to $30.

Analyst Christopher Schoell wrote:"We still view ASTS as a high-risk, high-reward investment. Nevertheless, preliminary approvals from U.S. regulators, the upcoming launch of the first commercial satellite, and progress in partnerships/funding have boosted our confidence."

UBS raised its revenue forecast for 2028 to $1.8 billion from $1.1 billion and expects EBITDA margins to rise from 60% to 70%. B. Riley raised its target from $15 to $26.

ASTS has also become a hot stock in the WSB community, the forums filled with investment records and dreams of striking it rich.

Given that WSB favorites often end up crashing, if ASTS starts to decline, what’s the best way to short it? Directly shorting the stock could be risky given current market conditions. Investors might consider using a Bear Call Spread strategy.

What is a Bear Call Spread Strategy?

A Bear Call Spread is an options trading strategy used when traders expect the underlying asset’s price to decline. It allows traders to short the asset while keeping risks within a certain range.

Here’s how it works: You can buy a call option with a specific strike price and sell the same number of call options with a lower strike price but the same expiration date.

Case of Shorting ASTS

Let’s say ASTS is currently priced at $32.20, and you expect it to drop to around $20 by September 20. You could use a Bear Call Spread to short ASTS.

Step 1：Sell a call option expiring on September 20th with a strike price of $20.

Step 2：Buy a call option with the same expiration date but a strike price of $35.

Once the strategy is set up, at expiration, if ASTS’s stock price is below the strike price of the bear call option (below $20), the strategy will achieve the maximum profit of $795. If the stock price is above the strike price of the bull call option (above $35), the strategy will incur the maximum loss of $705.

The main advantage of a Bear Call Spread is that it limits the risk compared to shorting the stock directly. The risk is capped because the loss from the lower strike price call is offset by the gain from the higher strike price call. Shorting stocks directly can have unlimited risk, while the Bear Call Spread strategy significantly reduces this risk.

ASTS is still rising rapidly, so keep an eye on it. When a shorting opportunity arises, the Bear Call Spread could be a useful strategy for shorting ASTS.