Unusual Options Activity: NIO Limited (NIO)

Shares of electric vehicle play
NIO Limited (NIO) have had massive returns this year. However, shares have started to slide in recent sessions. One trader sees the possibility of a further decline.

That’s based on the May 2021 $36 puts. Over 2,125 of the contracts traded hands, a 13-fold rise in volume from the prior open interest of 179. With shares trading near $44.50, the option would move in-the-money if shares dropped about 20 percent from their current price.

The trader paid about $7.40 for the option trade, so shares would need to drop even further for a profit at expiration.

NIO shares are up over 1,800 percent in the past year, as the Chinese automaker has been a popular day trading stock. The company currently has no profitability.
Action to take: This option trade is a roll of the dice—and not one that’s likely to benefit traders. While shares have trended down in recent weeks, the stock’s longer-term trend is up. Over time, that trend matters. Traders would be better off buying a call option here, betting on shares to move higher.

The February 2021 $50 calls, last trading for about $7.50, look like a safer bet here. It’s a comparably-priced bet, but it’s one that plays to the stock’s longer-term direction.