While technology players like Nvidia (NVDA) and Super Micro Computer (SMCI) have dominated the market this year, the business week ending May 17 belongs to electric vehicle manufacturer Faraday Future (FFIE). If you haven’t heard of the enterprise, you’re not alone. It’s also a sign that if you’re like most investors, you should steer clear of FFIE stock.
According to its public profile, Faraday is a “shared intelligent mobility ecosystem company.” In early 2021, the company made its public market debut via a reverse merger with a special purpose acquisition company (SPAC). I can probably just end the discussion right here considering how brilliantly these blank-check firms have performed post business combination.
Brilliantly bad, that is, if you didn’t catch the sarcasm.
FFIE stock is no exception. Since making its debut, the security has lost 99.96% of equity value, per data from Google Finance. That’s just about as bad as a public company can get without going to zero. And to spare you the time, zero may very well be where this story eventually ends.
As a rule of thumb, it’s best to avoid such draconian pronouncements because they can bite back badly. However, with FFIE stock, it’s difficult to characterize the underlying business as anything other than a train wreck. It’s a pre-revenue enterprise with an annual net loss of $552 million. At the moment, it features a market capitalization of less than $44 million, making it a nano-cap trade.
Prior to its dramatic performance last week, Barchart’s Technical Opinion indicator rated FFIE stock a 100% Sell. There was every reason to run for the exits, not least of which is Faraday’s failure to file a Form 10Q for the quarter ended March 31, 2024 within the prescribed time period.
Yet FFIE stock did pop dramatically for bullish speculators. Moving forward, though, the narrative could shift in favor of the bears.
FFIE Stock Lights Up Unusual Options Screener
Last week, FFIE stock managed to storm to a 2,134% performance. Given such a blistering run, it came as no surprise that Faraday ranked among the top highlights in Barchart’s screener for unusual stock options volume. This data interface helps identify what the smart money may be doing, potentially unearthing compelling opportunities.
Following the close of the May 17 session, total volume for FFIE stock options hit nearly 1.47 million contracts against an open interest reading of 489,544 contracts. Notably, the delta between the Friday session volume and the trailing one-month average metric came out to 1,072.47%. Breaking down the details, call volume reached 757,960 contracts versus put volume of 711,070.
Interestingly, the options flow screener – which filters exclusively for big block transactions likely made by institutional investors – was abuzz with activity. What was particularly intriguing was that comparing options with bullish and bearish sentiment, the number of transactions with six-digit premiums broke down to six and nine, respectively.
In other words, it appears that the big dogs are largely betting against FFIE stock. That makes sense given the poor financial situation. But why did shares rise so dramatically in the first place?
The answer to that question is most likely short-squeeze speculation. Barchart notes that Faraday’s short interest stands at 99.96% of its float. That’s an intense magnitude of bearishness that the bulls exploited. Essentially, to cover a short position requires buying to close. By logical deduction, if the bears panic, that creates upward pressure on the target security.
At the same time, the short float sits at only 0.6 days to cover. That means based on average trading volume, pessimistic speculators have enough share volume to quickly cover their positions. So, the bullish ride probably won’t last long.
Indeed, with Friday’s market loss of almost 38%, the pendulum has probably shifted.
Put Options Appear Compelling
Because of the speculative appeal of the short squeeze, it’s always dangerous to bet against the bulls. However, Faraday may be in a desperate situation. Right now, its retained losses are sitting at nearly $3.9 billion in the red. That’s going to take a long time to recover from, especially with no revenue.
Plus, with all due respect, management appears to be living in a fantasy world. With the company’s FF 91 commanding a price tag of $309,000, the EV startup is seeking an extremely narrow market. That’s not helpful at all because at that price point, people are looking for exotic hypercars. They’re not looking for funky crossovers that can do zero to 60 miles per hour in 2.27 seconds.
Don’t get me wrong, the performance is incredible. But the offering is underwhelming compared to what customers must pay.
Given that, the far-expiry 50-cent put options look enticing. For example, the Jan 17 ’25 0.50 Put saw volume of 2,206 contracts on Friday. The Jan 16 ’26 0.50 Put printed volume of 4,290 contracts. With so little going for FFIE stock other than the short squeeze, it may be time to go in the opposite direction.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
