In a market that’s been nothing short of dazzling, electric vehicle stocks have been in the proverbial driver’s seat. Let’s look at what’s happening in three of the most popular EV plays. How can bulls or bears more smartly position themselves in these volatile EV stocks to trade?
If it seems difficult to buy into the market these days, you’re not alone. A record-breaking rally led by the tech-heavy Nasdaq Composite has seen gains approaching 60% in just over 3.5 months. The speed and power of the buying has also continued to set new all-time highs almost daily.
In no uncertain terms, heavyweights Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have been key to the market’s rally. It makes sense. Well-positioned companies such as Zoom Video (NASDAQ:ZM), Shopify (NYSE:SHOP) and Square (NYSE:SQ) — which are seeing massive growth in today’s socially distanced environment — have also benefited.
Then there are electric vehicle stocks. Here are the top three EV stocks to trade:
Despite stay-at-home orders, Tesla, Nikola and Nio are looking in the rear-view mirror at most of the market’s ginormous gains. But what’s the road ahead look like? And how might investors best prepare? Let’s go to the price charts and options market for assistance.
EV Stocks to Trade: Tesla (TSLA)
The first of my EV stocks to trade is Tesla. The stock has hit record highs this week and enjoyed gains in excess of 300% since bottoming on March 18. The latest from this hotly contested stock is CEO Elon Musk’s announcement just yesterday. Apparently, Tesla is on the verge of manufacturing a fully autonomous vehicle this year.
Technically, the interpretation of the weekly chart suggests that overbought price momentum still has fuel in the tank. Then, you have Fibonacci-based resistance vis-à-vis a couple of two-step patterns since 2019 and a measured move away from this year’s V-shaped cup formation pattern.
Together, those point toward $1,500 or $1,600 as a price target for TSLA stock.
Since we’re looking to capitalize on additional price strength despite Tesla’s overbought conditions, a shorter-term, out-of-the-money bull call spread is ideal. And in light of earnings later this month, this strategy’s ability to reduce risk further makes even more sense. One favored vertical is the 31 July $1500 / $1550 call spread.
The next of my stocks to trade is Nikola. The company has raced onto the electric vehicle scene with plans for electric pick-up and freight trucks. But despite a valuation essentially matching Ford Motors (NYSE:F), Nikola’s EV presence centers around what’s basically a prototype.
Bottom line, the recent SPAC play is a favorite of more risk-tolerant bulls and bears. Both believers and naysayers have enjoyed turns in the driver’s seat of this incredibly volatile stock. Currently it’s the latter who appear to have the upper hand, following a confirmed lower high set against trend-line resistance.
I’d advise sticking with monthly options contracts due to inferior liquidity in the weekly options. Since July is set to expire next Friday, August would be the recommended go-to month for positioning. Having said that, and with bears holding the edge on the price chart, the August $45 / $35 put spread combined with a 50% stop-loss looks interesting.
Shanghai-based EV manufacturer Nio is the last of today’s stocks to trade. The outfit has been on a tear in recent weeks. A cash injection and stronger-than-forecast second-quarter delivery results have been largely responsible for a triple-digit rally.
A new $1.5 billion credit facility has allowed a modest extension of the rally to close out the trading week, but don’t think for a second Nio shares are done rallying. A 12-month price target of $25-$30 doesn’t look or sound far-fetched.
For this stock to trade, a collar using the weekly 28 August $22 call / $12.50 put combination for a modest $35 premium over Nio stock will keep investors safe and well-positioned no matter where shares wind up going.
Investment accounts under Christopher Tyler’s management do not own any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.