Nikola: Impending Free Trading Shares Will Cause An Imminent Crash To Less Than $20

Jun. 16, 2020 8:30 AM ETNikola Corporation (NKLA)284 Comments
Edward Vranic, CFA profile picture
Edward Vranic, CFA


  • I expect NKLA to crash under $20 soon, for similar reasons that saw SPCE crash to about $15 from $40.
  • PIPE investors in NKLA at $10 are about to be able to sell their stock.
  • Option traders are betting on an imminent decline in NKLA's stock price.
  • Warrant arbitrage will lead to more selling pressure on the stock.
  • Between PIPE shares and warrant exercises, expect NKLA's float to increase from 23 million to close to 99.4 million over the next month.

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Nikola Corporation (NASDAQ:NKLA) has been on an absurd run to the point where its market cap has increased to $23 billion based on Friday's close of $64. I'm not going to get into what an insane overvaluation that is for a pre-revenue company. There are already plenty of articles on Seeking Alpha for that. What I will explain are the mechanisms of this special purpose acquisition corporation, or SPAC, listing and why this will guarantee a crash in the stock price in the near future as the stock's float increases. The high implied volatility on put options compared to calls and the warrants trading well under their intrinsic value are two signs that also point to an imminent decline.

I have written about SPAC listings before, with the most comparable situation being Virgin Galactic Holdings, Inc. (SPCE). In February, I wrote an article called "Virgin Galactic Holdings: Early Cashless Redemption Provision On Warrants Could Cause A Stock Price Crash". SPCE has since dropped more than 50% in less than four months. While my reasons for being bearish on NKLA are different and far more pronounced, many of the mechanisms that saw SPCE crash in price exist for NKLA. SPCE was equally as hyped by momentum, short-term, day and rookie traders as NKLA is today, and its performance since its spike over $40 is as close as you can get to having a crystal ball or a time machine in the stock market.

ChartData by YCharts
ChartData by YCharts

The impending tripling in the float from PIPE investors at $10 per share

The main reason why NKLA has had such an absurd ride, trading like a

This article was written by

Edward Vranic, CFA profile picture
I am a private investor based out of Toronto, Canada and I have been investing since 2003. After 8 years in Corporate Finance with a Canadian Telecom company I have decided to dedicate myself full-time to the capital markets. I write on Seeking Alpha to demonstrate my financial analysis and writing skills across a variety of industries and to take advantage of any story-based trading opportunity that may arise. My passion and greatest depth of knowledge is on Canadian small cap stocks and I consider my blog posts to be some of my best work. I am interested in any freelance opportunities that may arise outside of Seeking Alpha on Canadian or American listed stocks.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in NKLA over the next 72 hours. 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.

Additional disclosure: I may buy put options on NKLA in the near future.

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