How I’m Trading Electric Vehicle Stocks

How I’m Trading Electric Vehicle Stocks

Posted On December 9, 2020 2:43 pm

The number of companies going public and their subsequent price moves in the electric vehicle (EV) sector is nothing short of shocking. It’s truly the first time I can say that the comparisons to the late 90’s dot.com days are truly warranted — in terms of money-making opportunities and the danger of disaster.  

The amount of EV companies on my watch list is growing daily.  Companies such as  NIO (NIO), Li Auto (LI), Fisker (FSR), Plug Power (PLUG), Blink (BLNK), and QuantumScape (QS) are getting plenty of attention.

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These companies basically break down along the lines of those that make electric vehicles, build battery technology, or the charging infrastructure, which will be needed to help EV’s realize their market potential.  

A few things are common, all have posted gains of over 300% in the past six months, none have profits, and most came public through the process of SPACs within the past year.   

The deeper discussion of SPACs versus traditional Initial Public Offerings (IPOs), will wait for another day to analyze. But, the main discussion is that a SPAC’s already publicly traded while the stock basically lays dormant until an acquisition target is announced.  And then it can explode. 

The QS chart provides a perfect graphic example as it sat at $10 for a couple of months and then went parabolic to $72 over the past few days. 

qs 2020 stock chart

I want to be clear. When I say these companies are on my watch list I literally mean I’m simply watching, not trading them. 

The reasons for my sideline stance are multifold. First, these have become highly volatile day trading vehicles and it’s simply incompatible with the low maintenance, consistent returns I’m trying to accomplish for Options360 Service members.  

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Second, from a pure investment standpoint, I think this sector’s becoming a total bubble. However, as I mentioned in yesterday’s article, “How I Learned to Stop Being a Permabear” I’ve refrained from being a contrarian, especially when it comes to shorting ‘story stocks’ which aren’t bound by traditional short-term valuations.  As the saying goes, being early is the same thing as being wrong. 

Right now, the EV sector’s being viewed as a blue-sky opportunity and is being dominated by a combination of momentum day traders and deep-pocket funds figuring they should sprinkle bets across many companies on the notion that the ultimate handful of winners will pay for the multitude of losers just as owning Amazon (AMZN) will pay for 10 duds such as Pets.com

Eventually, the story will turn, the destruction of capital will be truly shocking and big money will be made on the short side. The first sign to look for will be when new issues, SPACs or otherwise, don’t get gobbled up indiscriminately.  Then one can start placing bearish bets by using limited-risk option strategies. 

But for now, to quote the movie War Games, “the only way to win is not to play the game.” 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.