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From action-adventure classics such as “Star Wars” to contemporary blockbusters such as “Top Gun: Maverick,” patience represents an underlying theme. Shoot the missile or a burst of gunfire too early or too late and the desired payoff never materializes. Instead, the hero of the story must exercise restraint until the pivotal moment meets the opportunity. And so it is with Mullen Automotive (MULN).
A speculative enterprise by practically every measure, the upstart electric vehicle manufacturer appears an investment that all but the most dedicated speculator should steer well clear of. For example, on a year-to-date basis, MULN stock stumbled 99.8%. Based on historical data combined with the adjustment necessary for the company’s dilutive actions, the security has effectively lost 100% of its value from a rounded-up perspective.
Of course, it’s still clinging to life (albeit barely). Trading hands at 15 cents a share, circumstances objectively look bleak. Nevertheless, chatter on various public forums suggests that the bulls remain undeterred. So, for those that are committed to speculating on MULN stock, there is a small bit of good news.
Mullen isn’t entirely a guaranteed money pit.
Now, I want to be extremely careful about this statement. First, given the severe erosion of value from MULN stock, this opinion offers very little comfort. Second, I am concerned about a complete implosion of Mullen, an assessment published in early August of this year that I drew a little bit of heat for. Nevertheless, I was right to be concerned – shares traded for over a dollar at time of that writing.
Still, I also recognize the power of mass public speculation. If you’re going to gamble on MULN stock, so be it. But you should probably wait for this signal first before making your final decision.
MULN Stock Still Requires Patience for the Right Moment
Peruse Barchart’s screener for unusual stock options volume and you probably won’t find MULN stock mentioned. Head on over to the unusual options activity screener and you’ll likely encounter the same result: nothing. So, why even bother mentioning Mullen as an unusual play in the derivatives market?
For starters, the aberration of MULN stock options doesn’t seem to materialize as a one-off event as so many other options contracts do. Instead, the oddity centers on the averages. Specifically, if you consider the put/call ratio of MULN, it sits at 0.08X, reflecting at face value extreme bullishness (as more traders are buying calls than puts).
Of course, just the put/call ratio alone can be deceptive because for every option contract that is bought, another must be sold; otherwise, no contractual relationship exists between the risk taker (option buyer) and risk underwriter (option seller).
To get a better gauge of option sentiment, it’s important to consider the implied volatility (IV) curve. Here, Mullen is distinct in that MULN’s IV rises from deep in-the-money (ITM) puts to far out-the-money (OTM) calls. Put another way, traders anticipate much greater activity at higher strike prices than at lower strike prices.
That’s unusual compared to other speculative EV-related entities such as ChargePoint (CHPT) or Arrival (ARVL). With the former enterprise, IV spikes much higher at lower strike prices, suggesting that traders are mitigating for tail risks. For the latter, IV declines substantially at both strike price extremes, implying somewhat limited upside anticipation.
In contrast, MULN stock optimists decisively believe that shares will rise higher; hence, the put/call ratio appears so tilted to the bullish side. And sure enough, the bears who take the risk of shorting MULN face the danger of getting their positions blown up. So, the contrarians pay close attention to Mullen’s short interest of 14.6% of its float, which is elevated.
However, the signal to look for is the short interest ratio. Sitting at only 0.85 days to cover, this metric means that the bears – if they decide to unwind their short positions – would only need most of ONE day to do so, based on average trading volume.
Ultimately, the short interest ratio needs to be much higher – in my opinion, at least 10 days – before even thinking about buying MULN stock with any semblance of confidence.
Another Signal to Consider
Before concluding, market gamblers also have another clue to consider before placing their bets on MULN stock: any significant rise in sold calls in an options flow screener. With options flow, you enjoy visibility of big block transactions, signaling that these trades most likely were placed by institutional players.
Fundamentally, if more institutions decide to generate income (via premium collection) on sold calls, the concentration of such positions may offer a compelling green flag for contrarians. That’s because sold calls obligate the risk underwriter to buy the underlying security (if it’s not already in possession of the trading entity) if the contract is exercised.
This circumstance may lead to a panic if calls were sold naked – that is, selling calls without owning the necessary volume of shares to cover the position under exercise. Now, either way, the materialization of the aforementioned signals doesn’t guarantee anything.
However, without the signals, it’s far less likely that bullish speculation in MULN stock will work out favorably.
On the date of publication, Josh Enomoto 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.
