NIO Trade

Nio Ltd. (NIO)

Update 3/24/2021: I exited my short iron condor options position on NIO 23 days before expiration, for a $0.55 debit per contract/share, a profit before fees of $1.10 per contract/share. Shares were trading at $40.38, down $1.44 from the entry level.

I ended the position according to my rule requiring exit when the price reaches 50% of maximum potential profit.

Shares rose by 3.7% over 15 days for a 90% annual rate. The options position produced a 100% return for a 2,433% annual rate.

[NIO, hourly bars, with volume]

NIO rose in the first five days that I held the position and trended sideways thereafter. The rise remained below the $48 strike price of the short call, keeping the position in its profit zone throughout the holding period. My entry point was early in wave 4, and the price behavior was typical of 4th wave corrections — shallow and lacking drama.

I have entered a short iron condor spread on NIO, using options that trade for the last time 38 days hence, on April 16. The premium is a $1.10 credit per contract share and the stock at the time of entry was priced at $38.94.

The implied volatility rank (IVR) stands at 42.3.

Premium: $1.10 Expire OTM  
NIO-iron condor Strike Odds Delta
Long 55.00 90.0% 18
Break-even 49.10 85.5% 23.5
Short 48.00 81.0% 29
Short 23.00 85.0% 8
Break-even 21.10 87.0% 6.5
Long 20.00 89.0% 5

The risk/reward ratio is 3.5:1, with maximum risk of $390 and maximum reward of $110 per contract.The premium is 22% of the width of the position’s wings.
The profit zone covers a 38% move to the upside and a 68% move to the downside, for total range of 106%.

I skewed the entry to the downside based on Elliott wave analysis showing that wave 3 of Bitsy degree appears to have ended four days ago, and that wave 4, likely a shallow correction, is now underway.

[NIO at 10:29 a.m., 2-hour bars, with volume]

The trade was made in a period of low implied volatility. Among equities that meet my liquidity requirements, no ETFs were above my 30% threshold, and the only stocks that passed the test were Chinese companies, which carry additional risk in the form of currency fluctuation and regulatory surprises. Nonetheless, it’s a short-term trade, and that works in my favor, so I decided the risks were acceptable.

By Tim Bovee, Portland, Oregon, March 9, 2021


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.


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