Electric truck-maker Nikola Corp. (NASDAQ: NKLA) has been one of the wildest stocks of 2020.
The company went public in a reverse merger on June 4 at $34 per share and jolted 176.5% higher to $94 just three trading days later.
Since then, NKLA has experienced a significant drop and sits near $27 per share today.
But that doesn't mean we can't make money on it...
You see, Nikola's volatility is actually a good thing if you want to make fast money trading options.
So today, we're going to show you how to make money with options from the fall of NKLA stock using a strategy known as a "put spread" that Money Morning's own options trading expert, Andrew Keene, just revealed.
Here it is...
Nikola's Fraudulent History
Nikola has set some lofty goals for itself as it attempts to disrupt the $6.5 trillion global transportation sector.
Essentially, the company's mission is to eliminate the need for truck drivers with its autonomous electric 18-wheelers.
The problem is, Nikola has not built anything that is even close to being ready for the road today.
In fact, a report from Hindenburg Investment Research earlier this month just accused Nikola of being an "intricate fraud."
In the report, it accused Nikola of having no functioning prototype, nothing in pre-production, and a deal with General Motors Co. (NYSE: GM) made out of desperation.
Hindenburg concluded that it took a short position in NKLA stock, which really got short-sellers excited.
On Sept. 21, Nikola founder Trevor Milton resigned as executive chair amid those fraud allegations. And the stock dropped 19.33% that day alone.
The Best Options Trade Using Nikola Stock
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Since GM owns an 11% stake in Nikola, its fate is tethered to what happens to Nikola.
So, Money Morning's options expert, Andrew Keene, suggests selling rallies in GM stock. But not simply by selling it short and exposing yourself to infinite risk...
Rather, he is looking at a bearish put spread on GM to exploit the inherent drag on the company's profitability, while controlling your risk.
A bearish put spread is a strategy where you buy a put option on the underlying stock and then simultaneously sell a put option on the same stock with the same expiration date.
The only difference is that the strike price of the put you sell is lower than the strike on the put you buy.
Generally, the underlying stock will be at or near the strike price of the put you buy and above the strike of the put you sell.
There are two benefits to this trade.
First, your risk is limited should the trade not work. Second, your net cost - the debit - is lower than it would be by just buying a put alone.
Of course, there is no free lunch. In exchange for lower risk, you have to give up some profit potential.
The most you can make is the different between the two strikes less the cost of the spread.
The most you can lose, however, is the net cost of the spread.
As long as you have a reasonable downside price target for the stock, put spreads on GM are a great way to make money on the fall of NKLA.
He Made Millions Trading for an Hour Before Breakfast
Andrew Keene was living with his parents. Two years later, he had $5 million to play with - all because of this one strategy.
The crazy thing is you can do it in less than 90 minutes a week.
To see how easy your life could be, click here.