Oscar Health Inc (NYSE:OSCR) is in desperate need of a sentiment reversal, with the underlying equity bleeding market value recently. In the trailing five sessions, OSCR stock slipped 15%, while in the past month, it lost more than 31%. With skepticism seemingly mounting from all angles, the healthcare tech company — which specializes in the insurance segment — appears woefully treacherous. Still, hidden beneath the red ink could lie an opportunity for extreme contrarians.
On the surface, circumstances really don't look pleasant, with the bullish case possibly easy to dismiss as irrational. In the company's recent third-quarter disclosure, Oscar posted a loss of 53 cents per share, which mitigated the expected loss of 57 cents per share. However, revenue of $2.99 billion missed expectations, which called for $3.09 billion.
What was likely most problematic for observers was the loss from operations, which amounted to $129.3 million. In the year-ago quarter, this figure was only $48.4 million. Not surprisingly, some analysts — including Wells Fargo — were turned off by the latest print, resulting in Underweight ratings on OSCR stock.
It's also worth pointing out that bearish speculators may be targeting Oscar. While the magnitude of skepticism may have faded, negative sentiment still appears to dominate the discourse. As of the latest reading, the short interest of OSCR stock stands at 16.3% of its float. In addition, the underlying ratio is 2.83 days to cover, which is the time needed for the pessimists to fully unwind their short exposure.
Despite the torrential downpour, however, there could be an opportunity for intrepid speculators to exploit.
Leveraging the Power of Data Science to Extract Trading Ideas from OSCR Stock
As with any game of chance, the equities market offers a probabilistic range of outcomes. However, the market isn't just a singular object within a probabilistic space. Different environmental changes — such as sustained sequences of buying or selling pressures — may alter the probabilistic outcomes that would normally be expected.
In other words, a quantitative analyst doesn't just approach the equities arena through the lens of a single distributional curve. Instead, the analyst calculates a bimodal distribution — a range of outcomes under normal conditions and a range of outcomes under the specific condition at hand — to uncover variances.
These variances potentially symbolize pricing inefficiencies, which are also known as informational arbitrage.
Using a Kolmogorov-Markov state-transition framework layered with kernel density estimation, the forward 10-week median returns of OSCR stock can be arranged as a distributional curve, with outcomes ranging between roughly $12 and $16 (assuming an anchor price of $14.09). Further, price clustering would likely be predominant at around $14, indicating a neutral to slightly negative bias.
The above assessment aggregates all sequences since Oscar's public market debut. However, the current sentiment regime is highly distributive, with OSCR stock structured in a rare 2-8-D formation; that is, in the trailing 10 weeks, OSCR printed two up weeks and eight down weeks, with an overall downward slope.
Given the extended selling pressure, the range of forward outcomes should be different than what would normally be expected under baseline conditions. Sure enough, from a statistical standpoint, the distributional curve of outcomes tends to shift to the right, with forecasted prices potentially ranging mostly between $12 and $22.50.
Most significantly, price clustering would be expected to occur between $16.50 and $17. As such, there's a 17.9% to 21.4% variance in price density dynamics that traditional methodologies like technical analysis are blind to.
Letting the Numbers Guide the Wager
One of the biggest advantages of the quantitative approach over the technical is epistemic clarity. Market technicians make decisions based on a sample size of one. They see one pennant, one wedge, one support level and craft an entire narrative around it. Such methodologies are haphazard, with their viability purely dependent on the person making the claim.
In contrast, the quantitative framework is independent of the practitioner. So long as everyone agrees to the ruleset, everyone will arrive at the same calculations. Such internal objectivity allows traders to more easily identify attractive trading ideas.
For example, the prior price clustering dynamics show that there's a good chance of OSCR stock hitting $17. So, the most tempting idea is arguably the 16/17 bull call spread expiring Dec. 19. For this trade to trigger the maximum (capped) reward, OSCR must rise through the second-leg strike ($17) at expiration.
Again, that's a doable target given the aforementioned market intelligence. And the payout for the hypothesis coming true is 300%. Just as well, the breakeven price is $16.25, which makes this spread awfully tempting.
The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.
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