If you’re looking for a reason to buy Nio (NYSE:NIO), its price chart provides an easy one. After notching a new record high last week at a penny shy of $67, the red-hot momentum stock quietly retreated to a lower-risk buy point. Some chartists call it a bull retracement pattern; others call it a buy-the-dip setup. Either way, NIO stock is offering its first tasty trade opportunity of 2021.
Wall Street hearts electric vehicle stocks and is in the process of bidding the entire industry to the moon. Tesla (NASDAQ:TSLA) has been coronated as the king and reigns over the land. Its much-celebrated entrance into the S&P 500 last year was emblematic of EV stocks going mainstream.
Now, traders everywhere are piling into seemingly anything and everything related to the theme EV. Speculation abounds in a new string of ticker symbols, but perhaps none has quite captured the zeitgeist like Nio.
NIO Stock Volume Goes Boom
The Chinese automaker experienced an explosion in trading activity last year. To wit: its average daily volume for the past 50 trading sessions is 180 million shares. Again, that’s per day. It’s more than triple the volume in Tesla and even exceeds Apple (NASDAQ:AAPL) over the same time frame. If you want to pick the point apart, you could argue the total dollar volume isn’t as much due to NIO’s lower share price, but c’mon … we’re still talking about an insane amount of turnover.
What really boggles the mind is the percentage gain. Just over a year ago, Nio was flirting with penny stock status. Even more, it was one well-placed banana peel away from bankruptcy. Now, it’s surpassed the size of all but three of the largest automakers in the world.
I don’t know what your definition of a bubble is, but climbing from $1 to nearly $70 in a single year is about as good an illustration of bubblicious behavior as I can think of.
That doesn’t mean it’s demise is necessarily imminent, mind you. Calling for tops and fighting uptrends seems like a quick way to the poor house. Just ask the one (or two) remaining Tesla bears. From my perch, making money while the bubble is expanding is far easier than positioning for the potential (inevitable?) pop.
Two Trades to Play
And that brings us back to the original reason for spotlighting NIO. If you’ve long sat on the sidelines, afraid to chase the frothy stock, an attractive entry is now presenting itself. We’ve pulled back to the rising 20-day moving average.
Take a look at NIO stock’s history, and you’ll discover these have been golden buying opportunities over the past nine months. If you’re willing to bet history repeats, then consider the following trades.
The sky-high popularity of the stock is shared by its listed options. Open interest is through the roof across virtually all available strike prices. That makes for a super liquid environment and easy fills. Here are my favorite two trade ideas: one aggressive and one conservative.
Naked Put: Sell the February $45 put for $1.
This position pays out $100 per contract if NIO sits above $45 at expiration. The options market is pricing in an 88% chance of success. If you want a more bullish bet, then bull calls offer a much higher payout.
Bull Call: Buy the March $60/$70 call vertical for $3.
Your max loss is $300 and will be forfeit if the stock sits below $60 at expiration. The max gain is $700 and will be captured if NIO pushes past $70 by expiration.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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