What's crazier: chasing this move in electric vehicle stocks or shorting it?
The answer, of course, is both and neither.
In the end, the decision to trade these falls under your risk management and the ability to trade with discipline. Personally, I would like to short a few names. Electrameccanica ( SOLO
) just hit the wires with an offering filing that exceeds its market cap of a month ago. Ayro ( AYRO
) , a company with a strong balance sheet of cash, just did a direct offering of $10 million -- nearly 25% below its closing price on Friday. Yet, AYRO is trading up 22% on the morning. The two tranche warrants with that deal are in the low and high $8s.
Expect more from EV name offerings. They should be hitting the markets as hard as they possibly can. While markets may be efficient in the long-term, we hit patches of irrationality.
Is Blink Charging ( BLNK
) really worth three-times what it was trading for six days ago? It's now approaching a $1 billion valuation, while registering a whopping $3.8 million in sales over the past nine months. On the plus side, sales were up 84% and the company has deployed, sold, or acquired 668 EV charging stations across 25 states. It ended September with almost $15 million in cash but continues to operate losing money. While $15 million feels like a decent cash pile, the company burned over $10 million in the first nine months of the year. In short, Blink has enough cash to survive a year.
If you don't think a huge offering of $50 million to $100 million is coming soon, then you are fooling yourself.
Or maybe not? Because, will it matter? Ayro bulls don't seem to think so Monday. SOLO is barely down on a filing that will potentially dilute the stock by one-third based on my perceived offering price.
So, where is the efficiency? Was BLNK really that undervalued or is it currently overvalued. While we've seen some changes to the EV industry this month and BLNK reported stronger than expected earnings, even if BLNK grows revenue 100% next year, it is trading at 100-times revenue, while burning cash.
Of course, it doesn't look so bad compared to SOLO's 1,200-times revenue.
Friday, I theorized SOLO would be back to the single-digits and out of business in a few years. If the company raises $200 million, I'll have to recant the length of time the company survives. A $200 million war chest would certainly buy them a ton of time.
So, while I'd like to consider a short on a name like SOLO or BLNK or even Xpeng (XPEV), which is way overvalued compared to Nio ( NIO
) or Li Auto (LI), the risk level is one that could bankrupt a trader. And when examining puts, you see many traders might have the same short idea or the market makers don't want to be left holding stock.
BLNK is trading around $31-$32 as I type this. The December $25 puts, some 20% out-of-the-money, are trading for $4.70. A holder of those puts needs a 35% move to reach break even. The $35 calls are $5.80, so it's not like the market makers aren't concerned on the other side, as well. A strangle needs the stock to either be below $15 or above $45 in the next 25 days to make money on the intrinsic side of the equation. That doesn't mean you won't make money if you buy a strangle or a put or a call and the stock doesn't reach those levels. Of course, if the stock moves in the direction of your trade over the next few days, the premiums can rise thanks to the time left until expiration, but it's important to understand the enormous volatility still priced into these stocks.
That volatility makes the answer to the question do I chase or short: both and neither. In short, it's impossible to answer because the short-term efficiency of the market is lost. I expect we'll have a Thanos moment soon where many of these names will get cut in half with the snap of the fingers, but I have no idea how high they may be when it finally happens. As long as you understand the real risk a 50% move (possibly higher and lower) is still in the cards over the next few weeks then this is the area to focus on if you are an active trader. If you aren't, then grab the popcorn, sit back, and enjoy the entertainment.