Image Source: Pixabay
 

Like most things in life, markets move in cycles. Sometimes markets appear calm, and sometimes they seem vicious. The state of our relationship with the market is measured in P/L. At times the market gives freely, and at other times, the knives come out and our P/L is slashed.

It’s common for traders to want to find easy money, and they can find sometimes themselves in pockets of profitability where the only reason for the gains is being in the right place at the right time. 

As a result, traders can get very protective of their positioning. This can cause traders to try and eliminate any indication that the tenuous relationship with the market is only skin deep.

Traders can feel like there is significant grounding for their profits and may seek out any information that will help them project. These projections are often in the form of groundbreaking work that is about to change the entire paradigm of an industry. Of course, the profits aren’t due to current earnings and revenue expectations, but rather some ethereal, almost mystical, glimpse into the future. 

Like many relationships that are whirlwinds in the beginning, but lack grounding, they eventually dissolve -- and not always quietly. What’s left is the loss of the feeling of being in the right place, along with a degree of despair.

Have you felt these sorts of feelings about a company and have had your hopes dashed? 

The point is that while a real relationship can provide true fulfillment, a relationship with an investment generally doesn’t, especially if we allow for a whirlwind romance to be anything but temporary. 

So, what happens “after the lovin’?”

Case In Point

Let’s look at D-Wave Quantum Incorporated (QBTS). From March 7, 2025 to March 23, 2025, the stock appreciated nearly 200% following its earnings announcement. At first glance, the announcement must have been phenomenal and the trajectory or profitability must have been profound.
 

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Upon further consideration, how did analysts get it so wrong? How did a company that was trading at one price suddenly become worth 200% more in a matter of two weeks? What could possibly drive the stock so profoundly? Let’s take a deeper dive.

One of the first things to consider is that D-Wave Quantum is an approximately $4.75 billion company. When assessing a company like this, it’s important to determine whether the company is a growth, value, or income stock. 

When looking at the recent revenue projections, it looks like this company is projected to see substantial revenue growth.
 

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While the growth percentage looks amazing, once you take in the amount, you may realize that there is very little revenue coming in. 

 Once you understand this, you likely realize that the extraordinary valuations of this company have essentially priced in years of supernatural growth.
 

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The Driver

If D-Wave Quantum is struggling for profitability and has little or no revenue, how do you value a company like this? The short answer is that you can’t. This is a company that is living exclusively off issuing new shares of stock. If it’s not the romance of windfall future profitability, what could be driving this company’s share price?

The first realization you need to make is that this is a company that is highly shorted. This is a result of hedge funds and other bearishly inclined investors that have borrowed shares and have sold the stock already. For these investors to close their position, they need to buy back the stock. The mass exit from these types of positions is called a “short squeeze.”

For these short traders to reduce risk, they often buy calls in bunches. These calls create significant potential for upside movement in and of themselves. The market maker sells the calls and will hedge themselves through buying shares of stock. This creates gamma squeeze potential. 

D-Wave Quantum saw significant long call activity along its upward movement. The gamma squeeze progressed to a short squeeze, which led to more hedging, and so on. This type of progression is very common with high short interest stocks following a major sell-off in the market. 

The Destination

The eventual destination for this type of trade is a blow-off top. One of the best signs for this type of condition is turning over the stock’s float in one day. With a float of close to 280 million shares, a day with volume at this level or greater, you know the move is close to an end in most cases. 

That day has already come and gone. It was on May 20, 2025 when the stock traded 308 million shares. This day didn’t mark the top of the price, but rather part of a topping process. Because these types of whirlwind trades can end abruptly and with extreme volatility, it’s a good signal to begin preparations for the romance to end.
 

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The potential for a reversal was also marked by bearish 'Ghost Prints' that popped up on May 27, 2025 as large blocks of puts were being bought.

Conclusion

Identifying these types of stocks early on can be very profitable, but the biggest part of these trades is recognizing when the risk level is extreme. Don’t let your original line of thinking cloud your judgement as to the long-term prospects -- because once the volume peaks, the descent typically begins. 

I typically use the option activity in these types of stocks to identify the potential for a gamma to short squeeze, and I will use volume turnover and bearish prints to help identify reversal points. One of the great things with these types of companies is that you can easily trade spreads instead of buying equity, which keeps all of your risk on the table. 

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