More than a few high-flying electric vehicle (EV) stocks saw the plug pulled from electrifying performances last week. And rightfully so. But in an EV market also made up of stocks left to their own devices, one that looks ready to charge ahead is Hyliion (NYSE:HYLN). With that in mind, let’s look at what’s happening off and on the price chart of Hyliion stock. Then, offer a risk-adjusted determination for investors aligned with those findings.
Electrameccanica (NASDAQ:SOLO). Nikola (NASDAQ:NKLA). Kandi Technologies (NASDAQ:KNDI). Workhorse (NASDAQ:WKHS). Blameful fingers had a lot to point at as December got off to a less-than-jolly start in many EV stocks. From a pair of warnings from well-watched short-sellers, to General Motors’ (NYSE:GM) dampened partnership news and a delayed $6 billion EV fleet upgrade; There was a lot to hit the ejection seat with.
That said, shares of renewable natural gas (RNG) EV play Hyliion didn’t prove immune to the selloff. However, having steered clear of the group’s rally of the past couple months, it was news of an early warrants redemption which further rattled HYLN stock investors.
The announcement by the firm invited selling pressure. And with that, it played out as a dramatic-looking, single session plunge of 18% in the stock last Monday. Rightfully so, right? Not so fast.
As InvestorPlace’s Will Ashworth uncovered from Trucknews.com, Hyliion may be looking to use the cash to fill orders for its Hypertruck ERX platform for big rigs that are gaining a bit of traction. That’s good, right? Also, the early redemption also puts up to an additional $144 million in the company’s coffers with dilution of just 8%. But if warrant holders fail to exercise the contract, Hyliion can redeem them for a penny apiece.
Mindfully, despite HYLN stock veering off course in recent months, shares are still up about 90% this year. And as InvestorPlace’s Sarah Smith notes, if Hyliion is confident shares can continue to climb, the early redemption could be a very calculated move.
Hyliion Stock Daily Price Chart
Keep on trucking? The Hypertruck ERX juiced by RNG has some compelling advantages over the competition, including Tesla’s (NASDAQ:TSLA) own ambitions in conquering the long-haul trucking market. Still, while its beginning to put the rubber to the road, Hyliion stock is a more speculative name where $4 million in sales would be a big deal relative to a stock fetching roughly $3 billion.
Without fear of shares continuing to back up, investors interested in HYLN stock have an interesting technical picture to consider and the options market for more confident exposure to this EV stock.
On the illustrated daily chart of Hyliion, last week’s stock crash has given way to a double-bottom pattern backed by a bullishly-oversold stochastics. And with additional support found from this past summer’s corrective lows, there’s certainly evidence to produce a bid in shares. There are no guarantees of course, and HYLN stock will have it’s share of technical critics.
For those investors that use Fibonacci in locating bottoms such as Hyliion’s, a failure beneath the 76% retracement level tied to the stock’s September high, is a warning. As a guide, the inability to hold support points at the increased chance for a full-blown retracement back towards $10 per share.
Bottom Line on Hyliion Stock
So, with this particular imperfect situation, what’s an investor that’s still keen on Hyliion to do? I wouldn’t recommend buying shares as a core stock holding. If nothing else, the fundamentals simply aren’t there. Nor is the monthly stochastics, which is still absent given the stock’s short lifetime, but an indicator which I like to rely on when making that type of determination.
Still, I get it. Hyliion holds the promise of a cool-sounding niche within the EV market and shares have certainly taken a bath the past couple months. Also, for those with sufficient capital for riskier investments that can still go up further in flames — rather than a match lit under them — an out-of-the-money bull call spread looks about right.
One favored combination is an April $22.50/$35 call vertical is one limited and reduced risk spread which looks well-aligned with better days ahead, but at roughly 10% of Hyliion stock’s price, won’t break the bank in the event Mr. Market has other ideas.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Electrameccanica (SOLO) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.