To The Moon

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$VinFast Auto(VFS)$ becomes the third most valuable carmaker as the stock surge continues and its market cap is above $200 bln.

APEs on WallStreetBets say that he won't sell VFS until it hits $100.

How will you trade Vinfast?

Below are some insights from Tiger @drandy, @Bonta and @KYHBKO. Which opinions do you agree with？

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Click titles to read the full analysis:

1. @drandy: Considering the Company's Non-Profitability, the Current High Stock Value Appears Unsustainable

Key Points:

• Thus, I'm giving VFS a wide berth - I may regret this should it hit $100~ but I won't let greed cause my already high blood pressure to go even higher. If anything, I'll sell a put option with a strike price of below $10 when the time is right.

• As any real investor will know, when you buy a stock, the price will go down and when you don't buy it, the price will go up (the reverse is true for selling a stock). And so this was what happened with VFS - it was the first time since my formal investment journey started in late 2021 that I had witnessed the literal meaning of "to the moon" as VFS surged to $80~. It was what I had hoped Polestar would be (but PSNY didn't even come close to this) and a tinge of regret swept over me as I told myself I could've 8x my money and take a break from work for more than half a year with that of dough. If I had been a total noob, I've banged my head against the wall for missing out on this trip to the moon.

• However, as a somewhat more seasoned noob, I quickly realized that the tinge of regret was actually my greed talking. The meteoric rise in VFS could not have been foretold, certainly not in the current economic environment. Given that the company is not yet profitable, the high stock value at the moment looks also to be unsustainable. All these then reminded me that the stock market is irrational and worse, something of a manipulated casino.

2. @Bonta: Why I am not keen on shorting VFS

Key Points:

Options can allow for safer shorting either through speculating directly through buying puts with time decay working against us or selling call options With time decay on our side.

• That being said, capital outlay for selling naked call is no joke. Let's take selling Oct call option at strike of $125 which is around delta 15, proxy for 15% chance of finishing in the money, as an example.

  

  

  To get $200 worth of premiums, the margin required is $9474.05, which isn't a small sum.

• Alternatively, we can sell a bear call spread.

  This will reduce the capital required significantly.

  

  Do take note that when we sell bearish call spread, we sell the call option that is nearer to the money and buy the call option that's Further away from the money.

  For this particular case, we sell $125 call option and buy $130 call option. This will mean that as long as the stock doesn't go above $125, there will be no risk of assignment.

  when the stock price rallies, the short call $125 option will lose money, whereas the long call $130 option will gain money. Hence, the long call option will serve as protection.

  As there is defined risk in this case, the margin required is the gap between the strike price x 100 shares. In this case $5 x 100 - credit recieved. This will be the maximum risk For this position.

  

  Under normal circumstances, the above bear call spread will be a viable and safer way to short VFS.

  However, there is yet another issue with VFS. There is a lack of liquidity in the position.

  

  Selling at $1.20 and buying at -$1.20 for a net credit of $0.00.

  [Spurting] making donation to tiger.

  Ok, maybe it's just a spread liquidity issue.

• Let's see single call option.

  

  Bid at $1.3 and ask at $2.5.

  The spread is significant, again showing that VFS doesn't have option liquidity At far out of money positions I.e. safer positions.

  illiquid option positions post significant risk when choosing to exit early.

• Hence, I decided to sit out shorting VFS although it is indeed tempting.

  Also do take note that there's always the risk during expiration day that the stock will shoot up beyond call $125 and when call $130 cannot be used as protection.

  Hence, I will not recommend holding vertical spreads to expiration. Always manage the position before expiry.

3. @KYHBKO: VinFast - is this a new EV powerhouse??

Key Points:

I have a few observations (in USD$) for 3 months ending 31 March 2023:

Total revenue is $65.11M.

Note that there is a drop in revenue of almost 50% from the same quarter 1 year ago.

Total Cost of Sales is $222M

Gross loss is $161M

The total loss for the period is $598M

• Thus, the company has yet to achieve break even.

Coming to the balance sheet, here are the observations:

Current liabilities ($3.5M) are much more than Current assets ($1.8M) - thus, raising some short-term liquidity concerns.

The accumulated losses stand at $5.9M

Total assets are valued at $5.08B but total liabilities stand at about $7.2B

• There is also an increase in the inventories on hand compared Q1 between 2022 and 2023. This is an item to look out for. It could turn into red flag if it is due to aged inventories that could not be sold.

Coming to cash flow, here are some observations:

There is a notable increase in cash flow used in operations amounting to $811M.

CAPEX investment has increased and stands at $322M

• From financing, about $966M was borrowed to fund the business. This is a significant amount that we need to monitor - with huge amounts of interest being paid out.

Conclusion

It is too early to call this a success or failure. The business may not have reached critical mass and thus, there are many funds required for funding and expansion. I have concerns about the falling revenue and the failure to achieve profitability.

Questions for you:

How will you trade Vinfast?

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⏰Duration

• 6 Sep (24pm EDT)