There’s no denying the push for dominance that electric vehicles (EVs) are currently attempting. This is their best effort at toppling the internal combustion engine (ICE) off its perch. A handful of successful companies started the war, and a slew of newcomers are trying to follow in their footsteps. Fisker (NYSE:FSR) stock is unique because this is their second attempt at it. Henrik Fisker failed to launch the Fisker Karma in 2012. I was sad to see it go because it was eye candy. This time around the company has a huge tailwind.
In the last few years, Tesla (NASDAQ:TSLA) made EVs mainstream. In fact, most major legacy manufacturers like General Motors (NYSE:GM) and Volkswagen (OCTMKTS:VWAGY) are joining the fight. They have committed to steer away from ICE within 10 years. Fisker this time around is not swimming upstream. On the other hand, FSR stock is on a hellacious white waters ride without paddles.
It has fallen 70% from it’s March highs. Luckily, it still has dedicated fans judging by their enthusiasm on social media. Moreover, investors have so far reacted well to earnings reports. This is encouraging because it means that management has the benefit of the doubt.
FSR Stock Is All Hope
Fundamentally, there’s not much help there because it is all about expectations of future successes. They plan on bringing the Ocean line of vehicles to market but they are still pre-production. Their plans for that are not until 2022. I expressed some apprehension when I wrote about this opportunity in January.
Back then the stock was trading in a tight range around $15 per share. The bulls had the breakout opportunity above $16.50 per share. Indeed, they took it and broke out in a massive way. FSR soared to $32 per share on pure hopium. The expectations went too far beyond what’s possible without an actual product on the market.
When it comes to EVs I don’t have a problem with Tesla, Nio (NYSE:NIO) or XPeng (NYSE:XPEV). All three have growing profit and loss statements and tangible paths to prosperity. Investors can actually measure vehicle sales not just headlines about design progress.
In my January article, I also warned of risk below $14.30 per share. That scenario also came to fruition after the fall from grace. From a technical perspective, the stock is back to the November base. For those who already own the shares it’s probably too late to panic out of them. Conversely, those who wished they’d owned it on the way up, this is the opportunity to nibble.
The fact that FSR stock is back to its November base is not a guarantee that it cannot go lower. Therefore, investors should still use stop-loss levels. But at least buying it now is not an obvious potential mistake like it was at $30. Investors who are willing to use options can further lower their risk.
Using Options Can Help
Instead of buying FSR stock outright, selling puts creates an even bigger buffer. For example, I can sell the December $10 put and give myself a 30% cushion. If the selling persists I can still break even at $7 per share.
Regardless of safety margins, I prefer risking money when I have edge. In this case I don’t! If I buy FSR shares now I am at the mercy of milestone headlines. I have data when investing in an actual profit and loss statement like Tesla. At the time of entry, I know the exact value of the stock. FSR’s success depends on so many variables at this point, none are quantifiable.
It’s not wrong to invest in future potential, as long as we label it as speculative. The Ocean line can be a viable EV venture. But the risk size should remain small enough so not to break the bank. It is equally important to not average down on bad days.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.