Contrarian market participants — especially the kind that thrives on high-risk, high-reward ideas — should give a close look at Keycorp (KEY) this week. A sell-rated entity per the Barchart Technical Opinion indicator, KEY stock represents a tricky investment, to say the least. Since the start of the year, the equity is down almost 9%, much worse than the benchmark S&P 500, which slipped only 1.34%.

Perhaps not surprisingly, it made Barchart’s list of unusual stock options volume — but not necessarily for encouraging reasons. Following Friday’s close, total options volume for Keycorp reached 5,066 contracts, representing a 22.75% lift over the trailing one-month average. On paper, call volume hit 4,091 contracts versus put volume of 975, yielding a ratio of 0.24.

The above statistic sounds great until you dig deeper into options flow data. Filtering for big block transactions likely placed by institutional investors, net trade sentiment slipped to $525,100 below parity, thus favoring the bears. Predominantly, the call options were credit-based strategies, meaning that they were sold.

Specifically, traders were underwriting the risk that by the expiration date of June 20, 2025, KEY stock would not materially rise above the $12 strike price. Given that the premiums received for these calls were $3.60, the underlying assumption is that KEY will not move beyond $15.60. That’s an awfully aggressive wager, reflecting deep skepticism toward Keycorp.

Fundamentally, then, investors may be incentivized not to participate in KEY stock. However, options trading is not about the why but rather the how — how much, how fast and how likely. Stated differently, Keycorp might not be the most attractive business but the trading angle may offer an entirely fresh framework.

KEY Stock Flashes a Compelling Quant Signal

From a statistical framework, one of the trickiest aspects of trading KEY stock is that it natively offers very little in the way of directional trajectory. On any given week, the chance that a long position will be profitable is only 53.15%. To be sure, it’s technically an edge for the bullish trader but a small one. A bad series of outcomes could easily derail a long strategy.

As such, traders have both an incentive to consider a debit-based approach — which centers on buying the probability — or a credit-based approach, which essentially represents selling the uncertainty. Under certain sentiment regimes, a trader may find a credit spread (to underwrite the risk that KEY stock won’t rise to a defined profitability threshold) more appealing.

In many ways, the decision to apply a debit spread or accept the tail risk of a credit spread comes down to the interpretation of a security’s current sentiment regime. That’s where deciphering quantitative signals becomes a valuable toolset.

In terms of market breadth, KEY stock in the past two months printed a “7-3-D” sequence: seven up weeks, three down weeks, with a net negative trajectory across the 10-week period. Notably, in two-thirds of cases over the past decade, the following week’s price action ended in upside, with a median return of 3.09%.

Should the implications of the 7-3-D sequence play out as projected, it’s quite possible that KEY stock will pop above the $16 level within the next week or two.

What makes this setup so compelling is the pricing of risk. Market makers generally price KEY stock options with the assumption of a 53/47 split favoring the bulls. However, the 7-3-D sequence represents a unique quantitative signal; that is, it symbolizes a shift in market behavior. Therefore, the long-side probability may now be a 67/33 split, which if true would definitely favor a debit-based strategy.

Using the Numbers Game to Our Advantage

By understanding the numbers, traders can make more informed decisions. For those tempted by the statistical framework, the 15.50/16 bull call spread expiring June 6 offers an enticing proposition. This transaction involves buying the $15.50 call and simultaneously selling the $16 call, for a net debit paid of $24. Should KEY stock rise through the short strike price at expiration, the maximum reward stands at $26, a payout of over 108%.

This transaction makes sense because of the sentiment implications of the 7-3-D sequence. Natively, KEY stock barely rises above coin toss odds. Therefore, the probability of profit for the aforementioned call spread is listed as only 45.7%; hence, the high payout.

However, the response to the 7-3-D sequence suggests that the odds are actually much more favorable for the bullish speculator. In other words, the call spread could be favorably mispriced, again incentivizing a debit-based options strategy.