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How Bulls Are Betting as Kandi Technologies Group Inc Crashes

Short-term options traders expect record highs from Kandi Technologies Group Inc

by 7/24/2014 2:38 PM
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Kandi Technologies Group Inc (NASDAQ:KNDI) is taking a beating this afternoon, after a law firm opened an investigation into how the carmaker has achieved its sales growth. Specifically, at last check, the shares were off 6.5% to trade at $17.09. Earlier, the stock found a place on the short-sale restricted (SSR) list, and options traders have been aggressive, with total volume nearly doubling the intraday average.

KNDI's most active strike is the deep out-of-the-money August 25 call, where nearly 1,200 contracts are on the tape. It appears the majority of these calls are being bought to open at a volume-weighted average price (VWAP) of $0.26, as speculators expect a strong rebound for the shares. In short, the traders believe KNDI will be sitting atop $25.26 (strike plus VWAP) at the close on Friday, Aug. 15, when the front-month contracts expire. This represents uncharted territory for the stock, despite the fact that it's more than tripled in value over the last year.

Profit potential is theoretically unlimited beyond the aforementioned breakeven mark. Conversely, the most the call buyers can lose is the initial premium paid, should Kandi Technologies Group Inc (NASDAQ:KNDI) be sitting below the strike at options expiration.


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