Market Overview

Large Bullish Options Bets Placed On Nio

Large Bullish Options Bets Placed On Nio

For the second day in a row, at least one large options trader has taken a bullish position in a Chinese stock that has been hit hard by negative trade war headlines. Shares of Chinese electric vehicle maker Nio Inc - ADR (NYSE: NIO) are down more than 6 percent this week, but there were two bullish trades in Nio options suggesting options traders see the dip as a buying opportunity.

The Trades

After Benzinga Pro subscribers received option alerts related to bullish trades in Ctrip.Com International Ltd (NASDAQ: CTRP) on Monday, they got two more alerts related to Nio on Wednesday.

The first bullish trade was a purchase of 539 Nio call options at a $5 strike price that expire on June 21. The calls were purchased near the ask price of 54.1 cents and represent a $29,159 bullish bet at a break-even price of $5.541. The price suggests 18 percent upside to Wednesday’s trading price.

The second bullish trade was a purchase of an additional 630 of the same Nio call options roughly two hours later at the same ask price, an additional $34,083 bullish bet.

Options Insight

Even traders that focus exclusively on stocks watch the options market closely to gain insight into what options traders may be thinking. Due to the relative complexity of options trading, options traders are often seen as more advanced than the typical stock trader. Many of these options traders are institutions or wealthy individuals that pay have a unique take on a company.

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Buying Opportunity?

The trader buying Nio options on Wednesday may believe trade war pessimism is a bit too high at the moment. That trader may believe first-quarter earnings will surprise to the upside and/or a trade deal isn’t as far off as this week’s negative headlines suggest.

In addition, Nio’s american electric vehicle rival Tesla, Inc. (NYSE: TSLA) has had a rough start to 2019. Nio shares were hit hard when the company issued weak sales guidance in March. Tesla has also reported its own difficulties and was recently forced to raise additional capital. Tesla’s struggles may be a sign Nio has a bit more breathing room in the Chinese EV market than originally anticipated.

Unfortunately, it’s impossible to be 100 percent certain if an option trade is a hedge or not. Stock holders often use call options to hedge against a larger bearish stock position. Given the Nio option trades’ relatively small size, it’s unlikely to be a hedge in this case.

Nio's stock traded around $4.62 per share at time of publication.

Related Links:

Ctrip Options Trader Is Buying The Trade War Dip

How To Read And Trade An Options Alert

Photo courtesy of Nio.


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