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While the major equity indices inched a bit higher on Thursday, commercial electric vehicle upstart Arrival (ARVL) showed how it was done, skyrocketing to a 100% gain. That’s right – from the ringing of the opening bell to the close of the Jan. 12 session, ARVL rewarded long-embattled shareholders with a doubling – an exact one at that. Nevertheless, retail investors need to be careful about ARVL stock.
You only need to take a brief glance at any long-term chart (that is, at least three months) to recognize the devastation that Arrival incurred. To be fair, though, the criticism doesn’t just target ARVL stock. Even EV powerhouses like Tesla (TSLA) have not looked good, with TSLA hemorrhaging a little over 64% of equity value in the trailing year.
However, the catalyst for ARVL stock may not center on just blind speculation. Heading into Thursday’s key inflation report, many analysts and market observers held hopes that U.S. consumer prices cooled off last month, thus necessitating less-aggressive action by the Federal Reserve. Sure enough, they got their wishes, with the latest data confirming inflation slowed again in December.
Further, the AP reported that “[s]mall company stocks outpaced the broader market. The Russell 2000 rose, 32.01 points, or 1.7%, to 1,876.06 [compared to the S&P 500 rising 13.56 points, or 0.3%, to 3,983.17]. Every major index is on track for weekly gains.”
Another factor lifting ARVL stock focuses on possible retail trader belief in a short squeeze. Basically, rising prices put intense pressure on short traders, who must return the underlying stock they borrowed to initiate the short position. If prices rise too much, short traders may end up losing money. And because no theoretical price ceiling exists, the bears face the prospect of unlimited liability.
That seems to be one of the reasons for intense interest in ARVL stock in the derivatives market. Still, investors should exercise extreme caution.
ARVL Stock Witnesses Intense Interest Among Options Traders
Following the close of the Jan. 12 session, ARVL stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Traders typically utilize this information to determine which stocks may be due for big moves ahead.
Specifically, ARVL’s volume level reached 26,693 contracts against an open interest reading of 285,209. Call volume hit 23,624 contracts versus put volume of 3,069. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 1,432.32%. The implied volatility (IV) rank hit 67.23%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.
To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.
The IV low for ARVL stock was 27.99% on June 17, 2022. Several months later on Dec. 23, ARVL hit its IV high of 641.14%. Prospective investors should note that per Barchart.com’s technical analysis gauge, ARVL ranks as an average 56% sell.
In the short and medium terms, technical indicators point to a roughly split sentiment (though leaning bearishly). In the long term, the signs decisively point to a bearish trajectory. While ARVL stock gained almost 160% in the trailing five days, in the trailing year, shares plummeted 92%.
Presently, only one analyst covers ARVL stock and the assessment is diplomatically pensive. Three months ago, however, Arrival enjoyed a single strong buy view. Now, it’s down to a hold.
As if investors needed another reason to be cautious about ARVL stock, its 60-month beta stands at 2.19. That’s way more volatile than the benchmark equites index.
Chasing Arrival Presents High Risks
While forwarding an opposing view to a popular trade typically attracts emotional responses, no financial advisor in good standing will likely recommend a heavy (if any) exposure to ARVL stock. The data outside of speculative stats don’t support optimism.
In particular, TipRanks tracked investor portfolios on its platform, which amount to 601,088. Out of this tally, only 0.4% held ARVL stock. Of those holding shares, the average return is actually a loss of 1% in the last seven days and a loss of 5% in the last 30 days.
Again, ARVL gained 159.62% in the trailing five days. It also gained 116% in the trialing month. By logical deduction, then, most investors probably bought in earlier, thus absorbing hefty losses. In other words, investors should ignore much of the bragging on social media.
Thursday wasn’t about doubling their returns for most ARVL investors. No, it was about mitigating some of the pain of the lifetime return of 94.56% below parity. More than likely, this is no time for conservative investors to be chasing speculative ideas like Arrival.
More Stock Market News from Barchart
- Stocks Higher as Bond Yields Tumble on Slowing U.S. Inflation
- Easing U.S. Inflation Pressures Boost Case for Slower Fed Rate Hikes
- Stocks Rally After As-Expected CPI Report
- Options Traders Suggest a Little Patience is Necessary for AbbVie (ABBV)
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.
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