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We've been waiting for Wall Street to latch onto electric vehicle stocks. And that moment seems to have arrived. Tesla Inc. (NASDAQ: TSLA) is up 84% in the last month. Workhorse Group Inc. (NASDQ: WKHS) is up 275%.
Another top EV stock is up 133%. But we're going to show how you can still profit from this stock using our best Robinhood options trade this week. That's even if it pulls back.
There is a lot of hope for electric vehicles in the future. McKinsey said the global EV market would grow from $3.3 million in 2019 to $26 million by 2030.
But with any new technology, investors tend to get ahead of themselves, no matter how great the long-term potential may be.
In other words, prices have been bid up too far, too fast. This leaves stocks susceptible to pullbacks. A market can get only so frothy before the herd stampedes the other way, albeit for the short term.
Big long-term winners may get a dose of reality shortly. But that is a really good event for options traders. All of this volatility can be put to our advantage as we position for a sharp pullback in an otherwise attractive area.
What Makes EVs the Best Options Trading Strategy
There is a ton of hype surrounding the electric vehicle technology. While that's a great thing, it can produce some misleading pops in the market that can swing back down momentarily.
EVs are fully electric vehicles with rechargeable batteries. They have no gasoline engine at all. They do avoid harmful emissions and other dangers caused by traditional gas-powered vehicles.
There is little doubt about society's attraction to these cars.
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Each EV charger is classified according to the speed with which they recharge the EV's battery. The lowest level can be used at a regular household outlet. It takes 8 hours to build enough charge for a 75- to 80-mile journey.
The middle level requires dedicated charging stations, such as those found in an office building's parking lot. They take half as long for the same charge. The fastest chargers are dedicated charge stations and can give 90 miles of charge in 30 minutes. A Tesla Model 3 and Nissan Leaf can charge like this.
That's why you get all this hype surrounding EV stocks today. It's what is behind the 687% growth projection by Mckinsey, and what's fueling our best Robinhood options trade now.
The way the market is going, these EV stocks may still see a pullback. New competitor Nikola Corp. (NASDAQ: NKLA) entered the fold June 2 with an IPO at $34, and it has gained 55% since then, trading at $53.
While NKLA is promising for the long term, the stock has already started to pull back. It peaked on June 9 at $93.99, stabilized a for a short while, and then dropped again. Money Morning Quantitative Specialist Chris Johnson expects it to retest $47.50 or even $45 in the short run.
He says, right now, that "investing is exactly like a game." People are investing on their phones as if they were "playing candy crush four or five years ago… that's what's causing these hyperbolic moves."
That makes it a great time to buy put options. With NKLA already down some 40%, There is a better alternative for Robinhood options traders today…
The Best Robinhood Options Play
NIO Inc. (NYSE: NIO) has yet to pull back at all. It sports some very extended momentum indicators. It is as if the stock were stretched like a rubber band and about to snap back.
NIO closed out last week at $14.98 per share, and Chris expects it could hit $9 again.
In this case, you'll want to look at the NIO Aug. 21, 2020 $11 put with a maximum, or limit, price of $1.70. If the stock trades down to that target by expiration in August, the option will be worth $2. That would be a profit of 17%.
But NIO is not going to slowly ease its way down over the next month. Using NKLA as an example, when these stocks correct, they do it fast and forcibly.
It is more likely the stock will drop sooner than options expiration, and that means the option will be worth even more. You just need to sell the option as soon as the stock reaches $9. Or, for a bit more conservative play, when the stock drops to $10.
Don't forget, we think EV stocks have great long-term potential. It's just that they've gone vertical over the past few weeks and cannot sustain that pace for long.
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