Price Forecast:

Bullish Case: AAOI may benefit from a resurgence in data center demand, alongside positive implications from recent court rulings. High recent call volume indicates bullish sentiment as implied volatility remains favorable for upside trades.

Bearish Case: Continued financial struggles and significant debt levels raise concerns about sustainability, especially if litigation costs escalate. Historical mean reversion patterns suggest potential price retracement amid market pressures.

Potential Outcomes:

1) Continued bull run on partnership news: 40%;

2) Q4 earnings beat expectations: 30%;

3) Legal setbacks hinder growth: 20%;

4) Market volatility leads to sell-off: 10%.

Trading Oracle: Leverage a bullish call debit spread, buying $35 calls and selling $40 calls expiring January 18, 2025. This strategy uses high implied volatility, with good positive edge and expected return is 42% (144% annualized).

November 21, 2024