How Call Traders Tripled Their Money on This EV Stock

At the time of our recommendation, short-term LI options were fairly priced

Managing Editor
Jul 1, 2021 at 3:01 PM
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Last week, Subscribers to Schaeffer's Weekend Player service just scored a 201% profit in just under a month with China-based Li Auto Inc (NASDAQ:LI) September 17, 2021 23-strike call. Below, we're going to take a look back at why we were bullish on the electric vehicle stock, and how LI performed after we suggested the call option. 

When we entered the position on Tuesday, June 1, the automaker had the prior Wednesday just reported positive cash flow in its earnings report, as well as a revenue beat. What resulted was an impressive bull gap, prompted by a bevy of short sellers that, in founder and CEO Bernie Schaeffer's own words, had "grown complacent as LI took a 66% haircut from their Nov. 2020 peak near $48 to their May 2021 low just below $16."

The stock held those gains for the rest of that week, and there were reasons for continued upside beyond the short squeeze. LI's 14-day relative strength index (RSI) stayed below overbought levels in the 70s and well below the 84 level that accompanied the November highs. Plus, the 80-day moving average was reclaimed, a trendline that back in February had triggered the channel of lower lows. 

Lastly, short-term LI options were fairly priced, with implied volatility (IV) for options below 99% of such readings in the last year.

At the time of our recommendation, Li Auto stock closed at $23.81. It proceeded to carve out a channel of higher highs, trading at $33.90 by Monday, June 28. This breakout allowed our subscribers to lock in a 201% profit on the LI call, in a little under a month after our initial recommendation.

LI Stock Chart


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