China-based EV manufacturer XPeng (XPEV) is up over 150% in the past year as EV sales have exploded in China. One trader is betting on a pullback in the months ahead.
That’s based on the July $19 puts. With 114 days until expiration, 12,160 contracts traded compared to a prior open interest of 194, for a 63-fold rise in volume on the trade. The buyer of the puts paid $1.98 to make the bearish bet.
XPeng shares recently traded for about $21.25, so shares would need to decline by about $2.25, or about 10.6% for the option to move in-the-money. XPeng shares have already started coming down from a 52-week high of $27.16 in the past few weeks, so such a move is possible.
Although XPeng has been surging higher, overall revenues are up just 18% in the past 12 months, and the EV manufacturer has yet to turn a profit. XPeng has a strong balance sheet, with over $27 billion in cash, so the company is at low risk for bankruptcy despite the weakness in shares.
Action to take: XPeng shares are in a short-term downtrend, so investors should wait until the decline stops before starting to buy into shares now.
For traders, the July $19 puts are well positioned for the current short-term weakness in shares. Traders can likely see mid-to-high double-digit returns on XPeng puts in the weeks ahead, but should look for signs of a bottom to potentially play a rebound with call options.
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.