Is Unusual Options Activity Enough for Faraday Future (FFIE)?

As a general overview, electric vehicle manufacturer Faraday Future Intelligent Electric (FFIE) delivers plenty of attributes that would attract many people. Comfortable, roomy and incredibly fast, Faraday’s flagship FF91 is packed with the latest technical wizardry. Further, bullish speculators are hoping for the best with FFIE stock, placing bold bets in the derivatives market. Nevertheless, the pricing of the FF91 could be the Achilles’ heel.

Still, the overriding framework supports the ambitious electrification of personal mobility. Indeed, turn on the news at any random moment and you’re likely to encounter several factors that bolster FFIE stock and its ilk. In the business section, multidecade highs in inflation spiked costs of everything, particularly gasoline. While prices have declined from their peak, they remain lofty against historical norms.

Over on the geopolitical front, the ongoing war between Ukraine and invading Russian forces pose significant challenges for global hydrocarbon energy supplies. Further, Moscow’s weaponization of energy outflows pose major obstacles for European nations, which have grown increasingly dependent on Russian commodities.

Finally, even Mother Nature supports the wider narrative undergirding FFIE stock. Recently, California suffered from a severe heat wave, a condition which scientists claim is a result of climate change. While EVs alone probably won’t rectify the circumstance, the integration of zero-emissions vehicles will go a long way to attacking the crisis.

Fundamentally, then, it’s not entirely unreasonable to maintain a bullish outlook on FFIE stock, despite its sharp losses this year. Moreover, unusual options activity seems to confirm the optimism but will it be enough to reverse the negative trajectory of Faraday Future?

An Audacious Gamble for FFIE Stock

When the closing bell rang out for the Monday, Sept. 12 session, options traders identified FFIE stock as a potential upside opportunity, to a magnitude greater than normal. Market participants piled into the $2 calls with an expiration date of Oct. 21, 2022. Volume reached 16,653 contracts against an open interest reading of 493.

The bid-ask spread for the trade as represented by the midpoint price (14 cents) came out to 7.14%. While not the widest spread for the day, it was certainly not the narrowest, requiring FFIE stock to go deeper into the money for call holders to break even. On Monday, shares closed at $1.03, reflecting the gulf between the market price and the strike price.

Interestingly, though, the unusually bullish activity for the aforementioned call option aligns with the predominant trend in the derivatives market. According to data from Barchart.com, the put/call open interest ratio stands at 0.26. However, the typical delineation between bullishness and bearishness is 0.70. Figures higher than 0.70 reflect traders buying more puts than calls and vice versa for figures below 0.70.

The enthusiasm can possibly stem from FFIE stock generating grassroots support on various social media platforms. However, of the two analysts covering Faraday Future, both current rate shares as a “hold.” In the prior month, one analyst rated FFIE as a “buy.” Therefore, while retail investors may remain bullish on Faraday, Wall Street experts may be seeing the writing on the wall.

Pricing Could be the Arbiter

Although it’s undeniable that from a motoring and technological perspective, Faraday delivers the goods, from a business perspective, the company might be approaching the EV sector at an incorrect angle. Frankly, the flagship FF91 is priced well beyond the reach of most consumers.

Apparently, the idea behind Faraday’s pricing – with the FF91 starting at around $180,000 – is to stand out from the crowd by distributing premium vehicles well above what the average Tesla (TSLA) normally sells for. In addition, Faraday is more expensive than other EV upstarts, attempting to corner the sector’s ultra-luxury segment.

The problem here may come down to social cachet. Unlike the legacy firms that command the rarefied luxury car segment, Faraday has no heritage. For instance, among society’s elite, it would be no hassle for individual members to put down 200K or 300K for a new Ferrari (RACE). Indeed, Ferrari represents a company where the brand buys you, not the other way around.

It’s not so much that Faraday’s key consumer demographic can’t afford the vehicle – it’s whether they want to. For the kind of money that Faraday is asking for, consumers will want the prestige that Faraday just can’t provide.

Also, keep in mind that pricing could get even more expensive. Reports indicate that the FF91 starts at $300,000. That would simply be too much.

Only Apply if You’re a Speculator

Given the exclusive nature of Faraday Future’s marketing strategy, FFIE stock is probably only appropriate for the hardened gambler. After all, FFIE stock is down 83% on a year-to-date basis. The risky pricing decision probably contributed to some of that red ink.

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