On the surface, the latest news from premium electric vehicle (EV) manufacturer Lucid (NASDAQ:LCID) isn’t great. Earlier today, the company announced that it is lowering prices on its EVs for the third time in just seven months. This decision coincides with broader anxieties over the EV sector when it comes to demand and affordability issues. However, LCID stock is still driving up 6% today, carrying short-squeeze risk for bearish traders.
According to Seeking Alpha, the company’s base model Lucid Air Pure will “now start at $69,900 before a destination fee.” This is down from the previous price of $77,400. Likewise, the Lucid Air Touring will come in at $77,900, down from $85,900.
Interestingly, the ultra-premium Lucid Air Grand Touring will also get a discount, albeit a slight one. That model’s price will go down to $109,900 from $110,900. Along with these price cuts, Lucid stated that it’s “offering $1,000 to customers towards the purchase of a home charging solution.” Additionally, with every purchase, Lucid will provide free scheduled maintenance for two years or up to 24,000 miles.
CEO and Chief Technology Officer Peter Rawlinson expressed optimism about the future of EVs. The executive also emphasized that increased EV adoption represents a “necessary path towards reducing the impact of climate change.”
Bears Circle LCID Stock, But It Could Be a Trap
While Rawlinson should be commended for continuing to rally the troops and implement measures to boost demand, these price cuts ironically articulate the EV sector’s demand woes. With Tesla (NASDAQ:TSLA) electing to start a price war, bitter competition is burning sector players, including Tesla itself. Unfortunately, that’s not great news for LCID stock, as it has also struggled for market momentum.
In addition, Lucid’s price slashes contradict its main directive of providing premium EVs for premium customers. Generally, people who can afford six-figure luxury vehicles do not need price cuts to incentivize their purchases. Also, luxury retail specialists tend to eschew bargain offerings to protect their brand reputation of exclusivity. Therefore, it must be hard times for Lucid.
To be sure, Lucid’s long-term market performance reflects this disappointment. Nevertheless, the bears shouldn’t be too eager to jump on the short side of the trade. Yes, Fintel’s options flow screener — which filters exclusively for big block transactions — shows a high volume of bearish wagers for LCID stock derivatives: Bought puts and sold calls. However, the pessimism has also yielded a negative gamma exposure for options market makers.
Essentially, what this dynamic means is that the market maker carries net short exposure. Should LCID stock suddenly move against this net exposure (as in up), the sentiment spike may inspire traders to buy call options. In turn, the market maker must hedge this risk by taking the opposite-side wager, effectively shorting the security in a rally.
Watch the Short Squeeze
Another element adding risk for the bears centers on the possibility of a short squeeze. According to Fintel, the short interest of LCID stock as a percentage of float stands at 30.47%. The short interest ratio also clocks in at 11.85 days to cover. Therefore, a bullish lift could create a positive feedback loop in both the options and open market.
On the date of publication, Josh Enomoto did not hold (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.
