2 EV Stocks’ Unusually Active Options Worth Considering

According to Barchart.com’s unusual options activity data for Thursday, 1312 options had Vol/OI activity of 1.25x or higher. The top 100 options’ Vol/OI ratios were 8.95x or higher. 

Two themes were present in yesterday’s top 100: First, EV stocks were very popular with investors. I counted 11 options in the top 100. Secondly, thanks to Alibaba’s (BABA) announcement that it was splitting its business into six business units, e-commerce stocks, and their respective options were also popular.    

While it’s tempting to go with BABA, I couldn’t resist going with the EV industry. Even Tesla (TSLA) made it into the top 100. 

Here are two options worth considering that saw unusually heavy action yesterday. 

Can Tesla Keep the Momentum Rolling?

First up is the world’s largest pure-play EV manufacturer. On March 1, Tesla announced it had reached 4 million EVs produced in its history. 

The company Took 12 years to get to the first million. Then, it went from three million to four million in just seven months. Nearing two million vehicles from its four operating plants annually, it could reach five million by the end of August. 

As the company accelerates capacity beyond two million, investors can expect the cumulative production to snowball. At this rate, it could reach 10 million by the end of 2024 or mid-2025. That’s a milestone. 

Based on Tesla’s Q3 2022 financials, it made $9,574 per vehicle, 4.5x  General Motors' (GM) profit of $2,150. Tesla’s been aggressively cutting its vehicle prices to grow its market share. But, of course, when you’re more than $7,000 ahead of your nearest rival, it’s not a tough decision. 

Let’s assume that Tesla’s profit per vehicle will fall to $5,000 in 2025. Based on 10 million EVs, that’s $50 billion in profits, 4x their current level, and 61% of its current revenue.

Those are very persuasive numbers if you’re considering an investment in Tesla stock.

Tesla had two options on Thursday with a Vol/OI ratio of 8.95x or higher. One is expiring today, so that’s out. However, the Oct. 20 $245 call looks interesting. It had an ask price of $18.05, 7.3% of the strike price. That’s a decent percentage. Add that to the strike, and you get a purchase price of $263.05, 35% higher than Thursday’s closing price. 

TSLA is up 85% year-to-date. It’s on a roll. The question is whether it can keep it going. 

A recession in the second half would likely hurt the stock’s chances. However, given the 0.39025 delta, the stock would only need to rise in value by a little more than $46 to double your money, allowing you to exit the call before its expiry. 

It’s a reasonable risk.

Rivian Looks to Be Rebounding

New data suggests that Rivian’s (RIVN) business is getting stronger. According to Cox Automotive,  the EV maker had 8,145 registrations in the first quarter, nearly 1,000 more than analyst estimates. In addition, used vehicle data suggests Rivian vehicles aren't being resold like other manufacturers.

As a result of this new data, Rivian stock jumped more than 10% in Wednesday trading. As I write this on Friday morning, its shares are up more than 5%, looking to finish off the week in style. 

Another real positive for Rivian is its relationship with Amazon (AMZN). In 2019, the Seattle giant invested $700 million in the company as part of its plan to go net-zero carbon by 2040. Since that time, it's put 3,000 Rivian electric delivery vans (EDVs) into service. These vans have delivered 75 million packages emission-free. Amazon plans to have 100,000 on the road by 2030.

The Motley Fool’s Travis Hoium believes that Rivian should put itself up for sale before it’s too late. He argues that over the next 18-24 months, it will burn through a significant amount of the $12 billion in cash on its balance sheet, leaving little wiggle room just as it’s looking to scale up its Illinois and Georgia factories. A legacy automaker would give it the home it needs to get the job done without emptying the piggy bank.

He might be right, which is why the April 21 $14.50 put looks interesting. 

The put option had a Vol/OI ratio of 39.27x on Thursday. With a bid price of $1.02, you’re looking at a 7.0% yield over 21 days. Currently trading above $15, there is a strong possibility that it won’t be below $14.50 by April 21. 

On an annualized basis, you’re looking at a 122% return. Should it fall below $14.50 and get put to you, your purchase price on the stock is $13.48. Trading at just 1.2x cash, it’s unlikely, given the two pieces of news mentioned above, that it is sold for less than 3x cash or more. 

If you’re an aggressive investor, this bet makes sense. 

 

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.