China-based electric vehicle manufacturer Xpeng (XPEV), is down 22% over the past year, but shares have been trending higher in recent weeks. One trader expects the current rally to continue in the weeks ahead.
That’s based on the November 8 $13.50 calls. With 30 days until expiration, 10,965 contracts traded compared to a prior open interest of 128, for an 86-fold rise in volume on the trade. The buyer of the calls paid $1.70 to make the bullish bet.
Xpeng shares recently traded for about $13, so shares would need to rise by $0.50, or just over 3%, for the option to move in-the-money. The strike price is still well off the stock’s 52-week high of $18.74.
While Xpeng hasn’t turned a profit yet, revenues are up 60% over the past year, and China has been encouraging more EV sales, leading to a faster adoption rate compared to other countries.
Action to take: Shares are reasonably valued at current prices, and can likely see a further short-term rally given the rally under way in Chinese stocks as the country embraces stimulus measures. Investors could consider shares as a momentum trade.
For traders, the November 8 $13.50 calls could see mid double-digit returns over the coming weeks. Traders may want to take a quick profit, given how little time is left for that trade to play out.
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.