Unusual Options Activity: The Best Call Options EV Investors Can Buy

As I write this near the end of another week of trading, I'm scanning the unusual options activity to get an idea of some of the trends driving the options market on Oct. 14.

One trend that jumps out at me is the number of electric vehicles (EV) stocks experiencing unusual options activity. I see at least 44 potential call contracts to choose from—all with volume-to-open-interest ratios of 1.25 or better.

Here are my three favorites.

Nio

The Nio (NIO) call option that catches my interest is the Oct. 21 $11 contract. It has just seven days to expiry with an ask price of $1.20. Based on its current price of $11.79, the stock’s got to rise by less than 4% to break even. Volume on the call is 3,336, 16.35x the open interest. It’s one of the top Vol/OI ratios in the day’s trading. 

Nio’s stock is down more than 64% year-to-date. That has brought out the class action lawyers looking for disgruntled shareholders. That’s always a sign that a stock could be way oversold. 

I believe that Nio’s got an excellent opportunity to grab global EV market share. In October, it began delivering its ET7 EV sedan in Germany and other parts of Europe. That was the company’s fourth production vehicle. It’s now up to six. 

Tesla (TSLA), which had a big headstart on Nio into the EV industry, only has four EVs. That ought to count as a real positive for the Chinese company. The 62% drop in its share price says otherwise. 

At the same time that Nio was launching models such as the ET7 in Europe, the company was busy discussing its plans for a mass-market brand in Europe by 2024. 

As part of its expansion into Europe, it plans to open as many as 120 battery swap stations by the end of 2023. Approximately 95% of Norwegian owners of Nio vehicles lease their batteries.

In September, Nio delivered 10,878 EVs worldwide and 31,607 EVs in the third quarter, 29.3% higher than a year ago.

Its business will only get stronger as it grows in Europe. 

Luminar Technologies

Luminar Technologies (LAZR) has also had a miserable year in the markets. It's down more than 61% YTD. 
The pure-play Lidar (light detection and ranging) company’s products will be in many of the future autonomous-driving vehicles. At least, that’s the opinion of J.P. Morgan analysts. 

In September, J.P. Morgan analyst Samik Chatterjee and the other analysts at the bank gave Luminar’s stock an Overweight rating. Chatterjee believes that the company’s focus on Level 3-plus applications will make it the leader in the industry by 2030.

The analyst projects 2030 revenue of $6 billion while earning $7.25 a share at the same time. That’s more than its current share price. Analysts, on the whole, have given LAZR stock a December 2023 target price of $30.

The LAZR Oct. 28 $7.50 call option has a volume of 50,220, 90.49x its open interest, indicating that someone has big hopes for the Lidar stock. It’s an exciting bet for aggressive investors.

Tesla 

Of the 21 Tesla call options exhibiting unusual options activity, the June 21/2024, $400 contract appears to be the one on which most options investors focus. 

With 616 days to expiry, a lot of water has to pass under the bridge before deciding whether to exercise the option. Given the $25.60 ask price, the stock has to double to make money.

Tesla traded over $400 in October 2021, so it’s more than possible. After all, we are talking about the EV industry leader. If anyone can, it’s Elon Musk and Tesla.

Barron’s recently discussed why Tesla should start buying back its stock. Down nearly 49% YTD, it’s easy to understand the argument put forth by Future Fund Active ETF (FFND) co-founder Gary Black, who recently sent a letter to Tesla’s board recommending it use some of its nearly $19 billion in cash on its balance sheet to buy back its stock. 

“‘Tesla’s stock is now valued at its lowest [price to earnings] ratio since Covid,’ read part of Black’s letter. ‘With an investment grade credit rating now in place, we believe an aggressive multi-year stock buyback of at least $10 billion should be strongly considered,’” Barron’s reported.

Analysts expect Tesla sales to grow 25% annually for the next three years. Further, it expects the company to generate $55 billion in free cash flow over the period. It could easily allocate 20% of its free cash flow over the next three years.

If I’m buying one of these three call options, TSLA would be the one.  

• How To Buy KO For A 9% Discount, Or Achieve An 11% Annual Return
• Bears Bet Heavily Against Wynn Resorts (WYNN) But Could It Be a Trap?
• 3 Options Strategies For Goldman Sachs Earnings Next Week
• Jefferies Financial Group's Q3 Results Make It Attractive to Value Buyers