Should You Worry About Unusual Options Activity for ChargePoint (CHPT)?

• Unusually bearish options activity for CHPT stock warrants closer examination.
• On the surface, the bullish thesis is intriguing due to the EV rollout but it’s not a perfect narrative.
• Prospective investors need to assess all the data before moving forward.

From a bird’s-eye view, ChargePoint Holdings (CHPT) has benefitted from one relevant catalyst to another. For years, scientific organizations have warned the public about the dire trajectory of climate change. Though not a completely holistic solution by itself, a transition to electric vehicles would go a long way toward sharply mitigating carbon emissions. In turn, this dynamic should profit EV infrastructural investments like ChargePoint.

More recently, Russia made the dangerous and unsettling decision to invade neighboring Ukraine, setting off myriad alarm bells. One of them is the stark realization that much of Europe is dependent on Russian hydrocarbon supply chains, per data from the Columbia Climate School. But the silver lining is that regional leaders now recognize the importance of integrating alternative fuel sources, thus sparking renewed interest in CHPT stock.

Unfortunately, while the plotline undergirding ChargePoint and similar infrastructure plays seems patently bullish, the numbers tell a different story. Through the close of the April 18 session, CHPT stock is actually down over 23% on a year-to-date basis, a victim of poor performances over the trailing two weeks. Despite encouraging headlines such as the company’s partnership with Toyota Motor (TM), ChargePoint hasn’t been able to spark positive momentum.

Adding to these concerns, CHPT stock has attracted attention for unusually bearish options activity. Should investors be worried?

A Warning Sign for CHPT Stock

According to Barchart.com’s screener for peculiar trades in the derivatives market, CHPT stock stood out like a sore thumb. On the April 18 session, volume for puts on CHPT ($14 strike price with an expiration date of June 17, 2022) hit 50,394 contracts. However, the open interest for CHPT -- that is, positions that have been opened but not yet closed out, expired or exercised -- was only 220.

Therefore, the ratio between volume and open interest reached 229, the highest rating for the aforementioned session. All things being equal, traders have strong confidence that CHPT stock will dip below the $14 strike price, which is a little more than 8% below the current price. Another interesting observation is that due to the relatively low open interest, traders may not be enjoying the most favorable bid-ask spread.

In order for the bearish bet to be significantly profitable, then, traders likely must see ChargePoint shares dip well below the put’s strike price. To be fair, unusual options activities aren’t the end-all, be-all for deciphering future price movements. Nevertheless, it’s rather odd that such a relevant investment like CHPT is seeing outsized demand for the opposite side of the trade.

Could people be looking at ChargePoint and the EV infrastructure sector through the wrong lens?

The Good, Bad and Ugly of ChargePoint

Judging from the main print, it’s difficult to imagine why anybody would want to take a contrarian bet against CHPT stock. According to the U.S. Department of Energy, “EV sales grew by 85% from 2020 to 2021, while sales of PHEVs [plug-in hybrid electric vehicles] more than doubled, with an increase of 138% over the previous year.”

Of course, the rise of EV adoption will necessitate the buildout of charging stations but that’s where the first challenge lies. On balance, the electric pivot is still modest, with global EV sales in 2021 representing close to 9% of the total automotive market. In order for this transportation alternative to really break through, the supporting infrastructure must be widely available.

This circumstance leads to the chicken-and-egg problem. To justify continued investments in EVs, automakers need to see robust infrastructure. On the other hand, infrastructure providers must see adequate demand from automakers to justify their own rollout investments.

Another factor negatively impacting the transition to electric transportation is basic economics. Currently, the average household income for EV buyers is approximately $140,000, twice the U.S. average. To spark wider integration, the industry must bring down EV costs, which is going to be a gargantuan task considering runaway inflation.

Finally, the ugly: EVs are not the wholly clean energy darlings that many adherents make them out to be. As Amnesty International noted, the overall production process of EVs tend to exploit underprivileged nations. Indeed, the underlying supply chain is reminiscent of the global north/south divide, whereby resources are extracted from countries in the southern hemisphere for the near-exclusive benefit of the north.

The Bears May be Onto Something Here

While prospective traders must conduct their own due diligence, the unusual options activity for CHPT stock is a crucial warning that the typical narrative bolstering ChargePoint and its ilk may be stretched. Undeniably, interest in the EV transition -- an already relevant topic -- has spiked higher due to the geopolitical flashpoint. But that doesn’t mean execution is guaranteed.

Indeed, because of the flashpoint exacerbating economic vulnerabilities that the COVID-19 pandemic imposed, EVs may be harder than ever for regular households to access. Combine that with the reality that the industry must work to address human and environmental exploitation and it’s quite possible that CHPT might not be ready for prime time yet.