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Short Sellers Are Circling Nikola's Stock

Jun. 10, 2020 12:15 PM ETNikola Corporation (NKLA)F, TSLA131 Comments


  • The short sellers are focused on Nikola's stock with an insanely high cost to borrow shares.
  • Options traders are making bets the stock plunges too.
  • The future may be too far down the road.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

The short-sellers are circling Nikola's (NASDAQ:NKLA) stock and they seem ready to pounce on this one. The cost to borrow shares to go short is at crazy levels that seem hard to believe. Meanwhile, the options traders are betting the stock falls in the days ahead.

Insane Valuation

The stock currently has a market cap of $28.77 billion, which seems very high for a company that has no revenue and isn't expected to have a meaningful revenue stream until 2023. It gives the company a market cap on par with Ford's (F), which stands at $28.8 billion.

The company's presentation from March shows that they project revenue of $3.2 billion in the year 2024. That means the company is currently trading for 8.9 times four-year forward sales, an insanely high valuation. Sure, Tesla (TSLA) traded at some crazy valuations, like 24 times sales in 2012, but that wasn't for forward sales projections.

(Seeking Alpha)

Whatever the future may be for the company, regarding its plans for pickup trucks or semi-trailers, it is a long way down the road, and the shares are trading as if this future is inevitable, and better yet, remains on schedule.

Short Sellers Are Circling

It is likely the reason it cost the short seller about 350% on an annualized basis to borrow shares of Nikola, to use to then go short. It is an extremely high rate to pay to borrow shares of any stock. For example, when I first noticed the same thing going on in Virgin Galactic (SPCE), the borrow rate was just 44% on February 19.

It means that the stock has limited supply and a lot of demand from traders to borrow the shares to then likely go short the stock, a bet the stock falls.

Using Options Too

Additionally, traders are

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This article was written by

Mott Capital Management profile picture
Designed for investors looking to stay ahead of the pack.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Analyst’s Disclosure: I am/we are long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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