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Though aspirational business enterprises typically suffer from credibility concerns, advocates for electric vehicle (EV) upstart Mullen Automotive (NASDAQ:MULN) continue to hold the line. Lately, news broke that the cost to borrow (or the rate of the underlying secured loan to initiate a short position) for MULN stock plunged nearly 96% from its peak. Still, bullish investors piled in, with shares gaining over 5% on Wednesday’s afternoon session.
According to data from Fintel, at the opening bell today, the short borrow fee for MULN stock hit 32.1%. That’s well below the peak rate of 742.53%, set between the Jan. 2 and Jan. 3 sessions. At the time of writing, the cost to borrow dipped even more to 29.35%.
To be sure, this rate pings exceptionally high relative to normal market conditions. According to Financetrain, “[t]he typical fee for a stock loan is 0.30% per annum. In case of short supply, when many investors are going short on a stock, the fee may go up to 20-30% per annum.” Therefore, a healthy premium still exists for traders desiring to take the “negative” position.
Nevertheless, the remarkable transition from hot to cold may give some speculators (on both sides of the aisle) pause. “An increase in stock borrow rates may force (squeeze) some short sellers into closing their positions — getting out to realize their remaining mark-to-market profits and exiting before other buy-to-covers drive the stock price up,” stated S3 Partners analyst Ihor Dusaniwsky when discussing the informational value of short borrow fee dynamics.
Bulls Continue Charging Into MULN Stock
Despite the rapid deceleration in borrowing costs, the majority of bullish traders signal continued optimism for MULN stock. In particular, sentiment in the derivatives market strikes red hot to the long side of the equation.
According to Fintel, the current put/call ratio for MULN stock sits at 0.09. This ratio “shows the total number of disclosed open put option positions divided by the number of open call options. Since puts are generally a bearish bet and calls are a bullish bet, put/call ratios greater than [one] indicate a bearish sentiment, and ratios less than one indicate a bullish sentiment.”
More impressively from the optimist’s perspective, Mullen’s put/call ratio rates as number 4,811 out of 356,467 entries. In other words, MULN stock represents one of the most bullish trades in the U.S. equities market.
Still, the extreme enthusiasm for the upstart EV maker raises questions. Fundamentally, when too many traders bet on the same horse, this action invites a contrarian response; hence, the earlier high cost to borrow fee. Ironically, the meme stock phenomenon initially sparked because too many institutional players bet against certain embattled organizations.
Indeed, Warren Buffett warned that investors should be “fearful when others are greedy, and greedy when others are fearful.”
Peculiar Trading Dynamics Point to Certain Limited Opportunities
Although MULN stock may not be appropriate for risk-averse investors, speculators do have one objective reason to consider shares. Depending on the timeframe and trading discipline, Mullen can be lucrative.
According to information compiled by TipRanks, among all surveyed investors, 1.1% of their portfolios held MULN stock. Further, sentiment toward the EV maker pinged as “negative.” However, among the top investors (of which 0.6% of portfolios held MULN), sentiment rang out as “very positive.”
The sentiment difference comes down to performance. Among all investors, in the last 30 days, their return on MULN stock reached just under 1%. However, among top investors, their return averaged 29% during the same period.
Stated differently, if traders are willing to move in and out of MULN stock, the rewards can be incredible. However, holding onto shares — as many retail investors tend to do — yields relatively little gains.
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On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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