A leading provider of cloud-based contact center solutions, Five9 (FIVN) offers a comprehensive suite of tools designed to enhance customer engagement and streamline operations. Given the importance of the modern digital landscape, customer experience represents a critical differentiator for businesses. As such, FIVN stock should be compellingly relevant.

Unfortunately, the market has other priorities. Mainly, FIVN stock is currently suffering from valuation compression amid historically elevated interest rates. Previously, FIVN commanded a rich premium due to its growth prospects. However, investors have shifted away from high-growth, high-valuation stocks, which has disproportionately penalized Five9.

To be fair, analysts are generally positive on FIVN stock. However, the current average price target lands at around $37. One year ago, the consensus was considerably higher, suggesting a deep erosion in sentiment. Experts are still bullish on FIVN but their enthusiasm has waned.

This cloudy weather has carried over into the options market. On Monday, total derivatives volume reached 4,606 contracts, representing a 44.57% lift over the trailing one-month average. Interestingly, call volume hit 4,490 contracts, while put volume was only 116 contracts, leading to a put/call ratio of 0.03. Such a subterranean metric would initially appear optimistic for Five9.

However, an inspection of options flow — which focuses exclusively on big block transactions likely placed by institutional investors — revealed that net trade sentiment slipped to $215,100 below parity, thus favoring the bears. Notably, the calls were credit-based transactions, meaning that speculators were underwriting the risk that FIVN stock would not rise to predefined profitability thresholds by the stated expiration dates.

While that’s not directly pessimistic, the implications are rather poor. Essentially, the smart money sees a greater probability of either flat trading or downside risk than an explosive rise higher.

Nevertheless, investors will want to consider quantitative data before writing off FIVN stock.

Market Breadth Signals Potential Upside in FIVN Stock

Under the investment directive, market participants are primarily focused on the “why” of a target enterprise or asset. When it comes to options trading, the focus shifts toward the “how” — how much, how fast, and most importantly, how likely.

In other words, options traders require more precise data because they deal with the world of probabilities. While narratives provide context and color, none of that really matters if the trade at hand fails to be profitable.

As such, when attempting to extract alpha in the short term, I believe it’s far more helpful to consider quantitative signals, particularly market breadth, or the pattern of market accumulation and distribution. Such metrics symbolize demand rather than scalar signals such as share price or revenue.

Without getting too far into the mathematical weeds, the core advantage of demand is that it’s binary — and binary concepts are discrete. In other words, a market either has demand or it does not. There are no half-demand states of existence. Subsequently, discrete events can be categorized and quantified, allowing them to be projectable.

This attribute facilitates probabilistic analyses through the deployment of Markovian principles, which can identify the likelihood of transition from one behavioral state (i.e. bearish) to another (bullish).

In the past two months, FIVN stock printed a 3-7-D market breadth sequence: three up weeks, seven down weeks, with a net negative trajectory across the 10-week period. This pattern shows that the bears have dominated the discourse, with distributive sessions outnumbering accumulative ones.

Statistically, though, the 3-7-D tends to also signal a sentiment reversal. In 60% of cases, the following week’s price action results in upside, with a median return of 5.1%. On Friday, FIVN stock closed at $26.51. If the implications of the quant signal pan out as projected, FIVN could reach $27.86 in short order, perhaps within a week or two.

What makes this setup so intriguing is that, as a baseline, Five9 barely offers an edge over a coin toss. On any given week, the chance that a long position will be profitable in FIVN stock is only 52.84%. So, with the appearance of the 3-7-D sequence, the bullish speculator may have more than 7 percentage points of free odds in their favor.

Adding to the enthusiasm, historical trends suggest that if the bulls maintain control of the market, FIVN stock could potentially rise to $29.30.

Taking a Huge Swing at Five9

How does this translate into actionable insight? For those who want to play the probabilistic game, the 27.50/30 bull call spread expiring July 18 is tempting. This transaction involves buying the $27.50 call and simultaneously selling the $30 call, for a net debit paid of $90. Should FIVN stock rise through the short strike price at expiration, the maximum reward is $160, a payout of nearly 178%.

For those who want to take an extreme bet, the 27.50/30 bull spread expiring June 20, while extremely ambitious, is not completely irrational. As stated earlier, the 3-7-D sequence historically acts as a reversal indicator. If a reversal does materialize (which is not guaranteed, to be clear), the median upside performance tends to be quite robust.

Personally, I would be much more comfortable with the extra time cushion. However, the earlier-expiring spread features a whopping 257.14% payout. That’s something to think about, I suppose.