Shifting price gears

  • XPEV’s initial 240% rally followed by 63% correction
  • Company posted earnings beat on Monday
  • Sell-off, relatively low volatility may be reflected in options prices

Even on a day when almost every corner of the stock market appears to be flashing green, some moves can stand out more than others—and not just because of their size.

Case in point: Chinese electric vehicle (EV) maker XPeng (XPEV), which landed on yesterday’s LiveAction scans for highest total options volume as well as largest number of options trades:

Chart 1: LiveAction scan: Largest number of trades. Unusual options activity. Heavy options participation.

Source: Power E*TRADE

Its presence on both lists is worth noting. While a handful of huge institutional trades can sometimes account for unusually high volume, a large number of trades suggests more traders and investors are participating in a move.

Participation—at least on the part of bulls—hasn’t been particularly evident in XPEV over the past three months or so. The stock, which launched last August, rallied around 240% in the first three months of its publicly traded life as investor interest in EV makers surged. But it has since retreated from its November record high of $72.17, closing as low as $26.92 on Monday—a 63% correction.

It hasn’t been alone. Most other EV stocks are trading at substantial discounts to where they were late last year or early this year—part of a broad-market cooldown, a pivot away from tech, and a possible counterreaction to what some traders may have seen as an overdone rally in the electric vehicle space. (Notice, by the way, a couple of other EV stocks, NIO and WKHS, appear on the LiveAction scan.)

Yesterday was a different story for XPEV, though. The ramped-up options activity was accompanied by a 17% intraday stock rally on the heels of the company’s second-ever earnings release, which surprised the Street by topping headline earnings and revenue estimates:1

Chart 2: XPeng (XPEV), 8/27/20–3/9/21. XPeng (XPEV) price chart. Earnings rally.

Source: Power E*TRADE

When a stock falls 63% over the course of 14 weeks, the implied volatility decline that sometimes occurs can mean call options are relatively inexpensive. Yesterday, for example, an XPEV July $30 call was trading for less than half of where it was nine days ago.

Although some traders would hesitate to chase a market that just surged 17% in a single day, options traders as well as stock traders may be watching XPEV’s follow-through price action in the coming days for evidence that yesterday’s “participation surge” was more than a one-day affair.

Market Mover Update: April WTI crude oil futures (CLJ1) followed through on Monday’s intraday reversal, falling more than 1.5% yesterday.

Today’s numbers: Mortgage Applications (7 a.m.), Consumer Price Index, CPI (8:30 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include:  Oracle (ORCL), Cloudera (CLDR), Campbell Soup (CPB).

Today’s IPOs include: Roblox (RBLX).


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.  

1 XPeng Inc. (XPEV) Tops Q4 EPS by 1c, Revenue Beats, Offers Guidance. 3/8/21.

What to read next...

Two markets reverse notable moves—at notable levels.

Interest rate worries continue as technology's slide extends to three weeks, despite Friday rebound.

Comparing price action and options volatility can sometimes highlight stagnating stocks with the potential to move.

Looking to expand your financial knowledge?