Nikola ( NKLA) is a great reminder that things can spiral out of control fast. Look, I don't think a trader must bail on a position because Citron or Hindenburg take a short in the name, but you sure as heck better pay attention and at least read what they have to say. Yes, they are talking their own book, but aren't we all?
What it comes down to is taking the time to read their reports, then assessing the merits with your own eyes. I've found a key part of this is also the company's rebuttal, if one is made. In some cases, I understand the idea of remaining quiet if wild conjectures are made. I can even understand not commenting on events that happened outside of the company in the past and have nothing to do with current events; however, how a company responds to what directly impacts their business as it stands now does matter to me.
When a company immediately goes to the Securities and Exchange Commission and claims manipulation, rather than responding with a factual rebuttal, that is a sign of caution. If company execs take to social media with anger and frustration, but again, without a factual rebuttal, that is a red flag for me.
In the current market environment, I would be hesitant to get involved in a name once the SEC steps in. Once we see the Department of Justice, then I have no interest. Yes, a potential huge pop stands in the wings, if both agencies walk away without action, but what's the downside if they take action. It could be a fine and a slap on the wrist or it could be devastating. The situation becomes one where being short could result in a gap higher and immediate loss. If either agency takes action, the stock could be cut in half in the blink of an eye.
The problem, as I see it, is that traders have no advantage here without some insight into how the agencies will act. Option market makers feel the same way. The stock is currently pricing a 41% move over the next 30 days. It's pricing a 14% move over the remainder of the week. Selling volatility is risky. Buying volatility is risky. Going short is risky. Going long is risky.
And there's little insight into which might be the correct trade.
My trade thoughts: Stand down.
Step aside and let this one play out. While I do like getting involved in volatility, I don't see any edge here, only a lot of pain. One thing I do see is Nikola isn't a symptom for a disease in the electronic vehicle community. Any broad selloff based on any wrongdoings with Nikola, if there are anything, will be reserved for Nikola alone, so they should be looked on as an opportunity to enter the space anywhere outside of the company
Until we have more answers, that's how I'm playing this one.
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I'm afraid that election issues are going to dominate again Friday and Monday, keeping money on the sidelines.
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