While the broader market reaction has been slightly negative today following an attack against Israel by Hamas, Chinese electric vehicle manufacturer XPeng (NYSE:XPEV) bore the brunt of the damage. Earlier Monday morning, XPEV stock dropped 12%, in large part because XPeng had just pivoted toward the Israeli electric vehicle (EV) market. What’s more, the tragic incidents over the weekend appeared to catch the smart money completely off guard.
On Sept. 27, XPeng issued a press release noting that it shipped 750 vehicles to Israel, marking the largest single batch of exports this year. Of note, the EV shipment from China’s Guangzhou Port followed the conclusion of a ceremony that included local customs officials and port representatives, symbolizing the importance of this business directive.
Further, the statement revealed that two models were expected to be available in Israel, the XPeng P7 and XPeng G9. Both models have been adapted to meet the preferences of Israeli drivers.
Sadly, what had the markings of a promising business relationship is now faltering at the hands of the militant group Hamas. Launching what CNN labeled “unprecedented attacks,” the surprise assault thrust Israel into war. Per the latest update, more than 1,300 people have been killed on both sides. Hamas also claims that it’s holding more than 100 hostages, including Israeli army officers.
Big Money Sentiment Shifting Sharply in XPEV Stock
Prior to the attack, sentiment was generally positive for XPEV stock in the derivatives market. On the day of the aforementioned press release, both bulls and bears converged on the Jan 19 ’24 11.00 Call option, with traders eager to both buy and sell (write) this derivative contract. However, on Oct. 4, a major trader (or traders) bought 2,666 contracts of this call option, suggesting net bullishness.
Also, last Friday, Fintel’s options flow screener — which filters exclusively for big block trades likely made by institutions — noted that major traders sold 2,126 contracts of the Oct 13 ’23 17.00 Put, indicating a possible floor at the $17 strike price. At the time, XPEV stock closed in the open market at $18.16. Given the context of the strategic pivot to Israel, such a wager made sense.
After absorbing the broader implications of the attack against Israel, big money sentiment has now shifted sharply in XPEV stock. The total volume for sold contracts of the aforementioned Jan 19 ’24 11.00 Call has hit 4,715. Essentially, one way of mitigating the damage associated with buying large amounts of a sharply declining call option is to sell the same option.
Traders have also taken other aggressive measures. For example, likely institutional volume hit 1,788 contracts (against an open interest reading of 139 contracts) for acquisitions of the Oct 13 ’23 15.50 Put. The wide variance between volume and open interest indicates sudden demand. That makes sense, given the shocking nature of the Hamas attack.
Why It Matters
According to TipRanks, analysts peg XPEV stock as a consensus moderate buy. This assessment breaks down as nine buys, three holds and two sells. Overall, the average price target lands at $19.22, implying over 19% upside potential. However, it remains to be seen whether analysts will adjust their targets given the latest geopolitical crisis.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
