To The Moon

I am NEUTRAL on $NIO Inc.(NIO)$ at these levels.

Here's a look at the stock's daily chart:

The stock appears to be trading in an ascending broadening wedge pattern after a lengthy downtrend that began in January 2021. This pattern is characterised by higher highs and higher lows that "broaden" out. Based on the historical trendline I have drawn, the stock is near the lower trendline. It is also below all the daily moving averages and below the middle Bollinger Band.

This means that there are two possibilities with the stock:

Possibility 1: The stock breaks below the lower trendline and resumes the downtrend, forming lower lows in the process. While Nio has international operations outside of China, I think it would still be affected by the short-term COVID-19 headwinds that the country is facing. 

Possibility 2: The stock would bounce on the lower trendline and make one more leg up to test the upper trendline, forming a higher high in the process. This would be a purely technical move, as the outlook on Chinese stocks continues to be bearish in the short-term.

So, how do we trade this? I would suggest waiting for pre-market today to ascertain whether the stock would make a move above or below the trendline. We would take CALLS (11C or 11.5C) expiring in 3-4 weeks on a bounce off the lower trendline and we would take PUTS (10.5P or 10P) expiring in 3-4 weeks on a break below the lower trendline. For each position we take, we would hedge with a smaller position in the other direction (i.e. if you took calls, hedge with a small position of puts and vice versa). Good luck everyone!

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