Shares of electric truck manufacturer Nikola Corporation (NKLA) are down 80 percent over the past year. One trader sees a further decline ahead.
That’s based on the January 2024 $2 puts. With 379 days until expiration, 40,037 contracts traded compared to a prior open interest of 967, for a 41-fold rise in volume on the trade. The buyer of the puts paid $1.08 to make the bearish bet.
Shares recently traded for about $2.20, so the stock would need to drop about 10 percent for the options to move in-the-money. That would also take shares just under the most recent 52-week low of $2.01 per share.
The early-stage company went public just over a year ago and has seen share sink since. The company’s designs are still in their early stages. And there’s been some setbacks as partnerships for manufacturing electric vehicles have failed to pan out. At the rate the company is losing money, it could be in for a rough year ahead.
Action to take: Shares are still trending down, so interested investors should wait. More importantly, there could be a rising risk of bankruptcy by the end of the year at the rate Nikola is currently burning through its cash.
For traders, a short bet will likely pay off. But even in bankruptcy, the most the January $2 puts can be worth is $2, or not quite double what the option is going for. Still, traders can use an up day for shares to buy puts, and look to flip some smaller and quicker profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.