To really appreciate the scenario that unfolded in Nikola (NASDAQ:NKLA) stock one must sideline human emotions. This is not easy because NKLA stock discussions are more often fiery.
Source: Stephanie L Sanchez / Shutterstock.com
It came out of the blocks roaring and delivered 800% of upside. Unfortunately for the bulls who bought it late, the crash was equally as impressive.
Now the debate rages on as to how real or fake the company really is. Judging by the comments on social media and on my YouTube videos there is no in-between. Two extremes are fighting it out in debates, but the bears are definitely winning the stock battle.
The decision to buy-the-dip or not is not easy but it is simple. The fact is that price cannot find a bottom. Until that happens, the bullish thesis is pure speculation that the selling will stop.
Therefore by definition, buying NKLA stock now is full of hope and low on substance. Investors are stuck in a trend of lower-low traps for months.
I am not here to debate if the truck is real or not. There are enough of those stories available but they won’t help me trade the stock. It is fun to read about it because the story sounds straight out of the movies.
The Need for Nikola Trucks Is Real
The premise for the NKLA opportunity is real because the push for alternative fuels is more tangible than ever. The need for a change in how we power commercial transportation is almost an emergency. This is a very specific tangible opportunity for the right company. Tesla (NASDAQ:TSLA) and others are also promising electrified trucks, so the clock is ticking for Nikola.
The setback really materialized when word came out that the prototype was a fake. Now, onus is on management to prove them wrong. Public opinion is that they are guilty until they prove otherwise. Having said that, I’ve traded NKLA stock from the bullish side almost exclusively. The key term is that I “traded” it, I didn’t try to invest for the long term. This helped me avoid riding it down with perpetual losses.
At this stage I am not a fan of buying the stock for a long-term turnaround. Trading it actively seems like the better opportunity. For that, the situation favors traders who know how to read charts. Otherwise they are likely to be at the mercy of hopium. For that I prefer to use options where there are reliable methods that allow to leave room for error. Buying shares outright and hoping for the best is too risky.
Regardless of personal opinions on Nikola’s legitimacy, investors must lower their conviction. We simply don’t know what will the outcome be. Therefore, we must leave room for doubt – just in case.
Opportunity in NKLA Stock Is Questionable
Source: Charts by TradingView
If I’m already long, I shouldn’t add to my risk. New investors who are looking to speculate should keep the risk size small. Making speculative trades with a giant portion of a portfolio is not OK.
The problem is that there are no fundamentals to help support the thesis. The results will be binary in nature. We don’t have P&L’s for guidance, we only have promises and milestones to help us gauge the odds of success.
Lordstown (NASDAQ:RIDE) stock fell 8% yesterday because of production delays. It won’t take much to completely cause dejection with NKLA investors.
From the charts it looks like the bulls are trying to hold near $10 per share. While this is good news, they’ve tried it before and failed at $14, $18 and $29 per share. It take guts to get long the stock looking at these stats.
If you force me to gamble on NKLA stock, I would sell January $9 puts. At least this way I have some wiggle room. This would be a bullish position but with a break-even point under $7 per share. I don’t even need a rally to win. If management delivers progress to the liking of Wall Street then my profits were free.
In reality, I don’t sell put in stocks I wouldn’t want to own, and NKLA stock is not my jam. I am a spectator in this fight over NKLA stock. It is important that they succeed just so we can improve air quality in the long run.
I would leave you with a plea to tone down anger over a stock. People are too emotionally invested in these stocks. That’s never a good idea to mix profit potential with sentiment. We are human and emotions do cloud our judgment.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.