At its core, the options arena functions as a market within a market – and with contracts representing 100 shares of the underlying asset, they can offer enormous upside potential. Of course, nothing is free, especially on Wall Street. While it is true that, for example, a 3% move in the open market can sometimes yield a gain of 100% in the options market or more, this upside is not free.
Obviously, these transactions must go as planned for you to collect your outsized reward. However, the process is not easy because, unlike purchasing a title of wide variety, the options force you into certain complexities:
You need to choose a specific price region (strike).
You need to choose a specific time window (expiration).
You are exposed to non-linear gains.
The error is not continuous but rather discrete.
Basically, options trading doesn’t allow for a lot of forgiveness. Usually, being “mostly right” is indistinguishable from being flat-out wrong. Additionally, difficult decisions regarding strike prices and expiration must be made well in advance of any forward-looking decisions. Therefore, accuracy in the options market is not optional: it is built into the instrument.
To better understand the environment we face in the derivatives space, I use quantitative methodology through a hierarchical lens. Essentially, the idea is to divide price action into discretized trials to discover probabilistic behaviors based on frequency dynamics. In other words, consistent behaviors should create increases in probability mass, which will serve as a beacon for potential business targets.
To further improve this analysis, I expanded this concept to create a three-dimensional graph called risk topography. Basically, a topographic visualization preserves shape, asymmetry and voids. This last point is particularly important in determining where the results of specific quantitative signals most materialize.
It must be said that risk topography is not a standard measure in finance. However, I believe that once you recognize its usefulness, you will appreciate the higher dimensionality of analysis it brings.
Chinese e-commerce giant JD.com (JD) has struggled throughout this year, with JD stock losing more than 15% year to date. Yet recent dynamics suggest that a possible turnaround may be underway. Notably, over the last five sessions, JD has gained around 3%. Interestingly, however, the latest implied volatility (IV) data suggests that the market is not expecting such a big change in the coming weeks.
Barchart’s expected move calculator projects a range between $27.16 and $31.64 for the options chain expiring on February 20, 2026. In aggregate terms, 10-week returns for JD stock are generally expected to range between $28.50 and $31, with price clustering occurring around $29.60 (assuming an anchor price of 29.40 $, Friday close).
However, the current quantitative signal for JD action is the 3-7-D sequence. Over the past 10 weeks, JD has only printed three weeks of upside, resulting in an overall downward slope. Although seemingly pessimistic, in this setup, 10-week forward returns would typically range between $27 and $33, with predominant price clustering just below $30.
Given this behavioral trait, the 29/31 bull call spread expiring February 20, 2026 might be the most attractive for contrarian options traders. Using data provided by Premier Bar ChartThe breakeven price for this trade is set at $29.89, which is close to where JD stock tends to cluster according to the Risk Topography chart. At the same time, there is potential for increased activity between $31 and $31.50.
Ultimately, the 29/31 call spread offers a decent chance of not losing money while still fighting for the $31 strike price, which would trigger a max payout of almost 125%.
Data infrastructure specialist NetApp (NTAP) is another name that hasn’t exactly performed well this year. Since January’s open, NTAP stock has fallen nearly 5%. It’s not a terrible performance but it’s not exactly encouraging either. The Barchart Technical Sentiment Indicator rates stocks as Hold – which is not an unfair assessment when looking at overall price dynamics.
Based on the IV levels, the market is not expecting a huge move from NTAP stock. According to Barchart’s expected move calculator, NTAP could land between $102.95 and $118.08 for the options chain expiring on February 20, 2026. From a quantitative perspective, overall conditions would place NTAP’s 10-week returns between $109 and $115, with price clustering likely to occur around $112 (assuming a price anchor of $110.51).
However, the current quantitative signal is the 3-7-D sequence. In this setup, NTAP stock’s 10-week forward returns are expected to range between $100 and $135, with price clustering likely to be predominant at around $120.
Looking at the risk topography, the maximum density does not appear exactly at $120 – rather it is an approximate field using the kernel density estimate (calculation). In reality, price behavior tends to be between $120 and $122.50. This actually makes the 115/120 bull call spread expiring February 20, very attractive.
If NTAP stock rises to the $120 strike price at expiration – which appears to be in play – the maximum payout would be 150%.
Among the stocks on this list, Zscaler (ZS) is the clear outperformer, gaining nearly 28% year to date. At the same time, it has recently suffered heavy losses. Over the past month, ZS stock has fallen more than 8%. Over the past half year, the stock is down 27%.
Based on the latest IV data, the market expects a significant fluctuation in ZS stock. Barchart’s expected move calculator shows a possible range between $210.48 and $250.56 for the February 20 options chain. From a quantitative perspective, overall data suggests that Zscaler’s 10-week returns would likely range between $225 and $255, with prices consolidating at $237.50.
However, the current quant signal is the 2-8-D sequence. Under this heavy selling streak, 10-week forward yields would likely range between $212 and $270, with predominant price clustering around $238. However, using risk topography, we can see increased activity at $250, which provides an intriguing idea for a bullish trade.
For the more daring speculators, they can consider the 240/250 bull spread expiring February 20. This trade has an equilibrium price at $243.60, making the bet more acceptable from a probabilistic perspective. However, the duration of the second leg of the trade allows traders to reach $250, which would trigger a maximum payout of almost 178%.
As of the date of publication, Josh Enomoto did not have (directly or indirectly) any position in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. This article was originally published on Barchart.com
