The Street’s hottest electrical automobile stock Nio (NYSE:NIO) is quick approaching its subsequent important check — earnings. And expectations and optimism for NIO stock are working actually, actually excessive into the occasion.
Since its final report in August, Nio has undergone a meteoric rise of 210%. Such mouthwatering positive aspects are epic after they transpire over a yr, not to mention a single quarter.
Skeptics will argue traders might be getting forward of themselves. There’s no denying this as soon as little-known Chinese language EV stock is pricing in an excessive amount of future progress. However such is at all times the case when momentum takes maintain.
Momentum is usually a self-fulfilling prophecy, making a virtuous cycle. Greater costs appeal to extra shopping for, which begets increased costs. And it’s unimaginable to know which stocks are constructing a sustainable rise and that are constructed on fluff till nicely after the very fact.
Within the close to time period, November 17’s earnings report looms massive as an apparent catalyst that can set the tone for Nio’s subsequent transfer. Given the magnitude of its price rise, let’s simply say the numbers don’t must be good; they must be nice. In any other case, some extreme register ringing might be in retailer.
Nio Stock Chart
The pre-election plunge within the S&P 500 from late-October didn’t impression NIO stock. Slightly than sinking with all the things else, it zipped increased in a powerful feat of relative energy. However what’s new? Nio has been defying gravity whereas slaughtering short-sellers all yr lengthy. Muscle flexing is what it’s identified for.
The price pattern simply noticed a strong enhance in momentum through the present swing. Removed from slowing down, the already swift rise has turned parabolic. Uptrend? Test. Rising Momentum? Double Test.
On the shifting common entrance, all smoothing mechanisms are rising in help of Nio’s bid for world domination. The 20-day shifting common has been the recent spot for help consumers since May. However we’re not even near that degree. The space between it and the price is extra important than at any time for the reason that uptrend started.
That, greater than something, ought to give consumers pause. We’re overbought. Extraordinarily so. Tack on a looming occasion that has the potential to ship instantaneous in a single day ache or achieve, and I see little purpose to straight-up purchase the stock right here.
If you wish to lean lengthy into the occasion, the choices market supplies a way more enticing different to piling in at these costs. Promote places. Bare places, to be actual. Use one contract for each 100 shares of stock you’re keen to buy. Besides as an alternative of shopping for them at $44, you’ll receives a commission to accumulate them at decrease costs.
The Put Play
Such is the enchantment of promoting places. If NIO treads water, heads increased or just doesn’t fall too removed from its present perch, then the put will find yourself expiring nugatory, and also you’ll have the ability to pocket the premium paid at inception. Alternatively, if NIO stock does see profit-taking after earnings, and falls far sufficient to push the put in-the-money at expiration, then you definately’ll be on the hook to purchase 100 shares per contract.
However hey, shopping for at a steep low cost to $44 carries much less danger than leaping in now.
The Commerce: Promote the December $35 places for $2.15.
The choices market is pricing in about an 80% likelihood that the put expires nugatory, and also you pocket the $215 per contract. If NIO does fall under $35, then you definately’ll have to purchase 100 shares at a price foundation of $32.85. That represents an approximate 25% low cost from Monday’s closing price.
On the date of publication, Tyler Craig didn’t have (both straight or not directly) any positions within the securities talked about on this article.
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