Easily one of the biggest winners on Monday was upstart electric vehicle manufacturer Canoo (NASDAQ:GOEV). Thanks to a key government approval, GOEV stock skyrocketed, aided by a clearer pathway to profitability.
According to Electrek, management announced yesterday that the U.S. Department of Commerce approved Canoo’s Oklahoma City, Oklahoma facility as a foreign trade zone (FTZ). In theory, this approval should help accelerate Canoo’s “Made in America” directive. As well, it may help improve unit profitability and facilitate a quicker road to breaking even.
Notably, the facility currently employs around 100 workers. However, at full capacity, it could support up to 1,100. Therefore, Monday’s announcement has significant implications for the regional economy.
Following the news, GOEV stock soared higher, eventually closing up over 49%.
In the premarket session, shares have moved up to around $3.08 or 6.5% up. Despite the enthusiasm, though, investors need to be careful. Even with Monday’s pop, GOEV is down 45% year to date. However, we’re not interested in investing in Canoo as much as we are trading its shares.
Ride the Momentum, Then Profit from the Fall
When it comes to trading, market participants must respect the immediate data or the momentum. According to Barchart’s Trader’s Cheat Sheet – which freely lists the major support and resistance lines – we can see that the premarket session has already swung GOEV stock past the psychological resistance barrier of $2.99.
The next logical target is $3.57. Therefore, the immediate sentiment could take GOEV stock up to or near this point. However, it may be more difficult to push beyond this point. That’s because Barchart identifies several tranches of resistance at $3.79, $3.85, $4.06, $4.67 and $5.47.
Of course, it’s not impossible for GOEV stock to move past these resistance levels. However, this is a company that has only generated $520,000 of revenue on a trailing-12-month (TTM) basis. Also, Canoo has incurred a retained loss of $1.45 billion while sitting on a cash and equivalents account of $8.26 million.
Once shares move toward that first major resistance point of $3.57, the market will likely focus on the fundamentals and their credibility (or lack thereof). That’s the risk factor in continuing to hold the bullish thesis indefinitely.
Trade of the Day: Buy GOEV Stock Calls, Then Puts
From a tactical perspective, the first move is to take advantage of the bullish momentum. You can potentially do this by buying the 17 May 2024 $3.50 call. Assuming the market opens with GOEV at $3.22, the premium on this option should be around $1.04. If by Friday near the close GOEV reaches $3.57, the premium would be worth $1.24.
Assuming a profitable trade, we would pocket the profits and turn our attention to the downside. According to Barchart, support for GOEV stock starts at $2.23 and goes down to 43 cents. I don’t expect that severe of a drop into the pennies. Nevertheless, a correction to $2.50 seems plausible.
The 17 May 2024 $2.50 put is attractive because of the high volume of 11,114 contracts on Monday. Also, as GOEV stock presumably rises higher this week toward $3.57, the $2.50 put would get increasingly cheaper. By playing both sides of this market, you could end up with some handsome profits.
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.
