China-based EV manufacturer NIO (NIO) is down 25% over the past year, but shares have started to rally in recent weeks. One trader is betting that shares will continue to rally over the next month.
That’s based on the November 1 $9 calls. With 30 days until expiration, 10,172 contracts traded compared to a prior open interest of 400, for a 25-fold rise in volume on the trade. The buyer of the calls paid $0.36 to make the bullish bet.
NIO shares recently traded for about $6.75, so shares would need to rise by at least $2.25, or 33%, for the option to move in-the-money. The strike price of $9 is right under the stock’s 52-week high of $9.57.
Although NIO has been selling more vehicles over the last year and revenues have soared by 99%, the company has still failed to earn a profit, and has a -32% profit margin.
Action to take: It’s likely that some of the recent boost in shares has come from China’s recent stimulus measures. Those measures likely still have some time to play out, which could lead to a continued rally for NIO over the coming months.
But this would still be a very speculative trade on momentum out of Chinese stocks right now.
For traders, the November 1 $9 calls play to this aggressive trend, and the options are inexpensive enough to see high double-digit returns, or even better, depending on how much shares rally.
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 company mentioned in this article.