Lucid Group Faces Pessimism with Unusual Put Options Activity Following Disappointing Results

Lucid Stock

Lucid Group (NASDAQ:LCID), the luxury electric vehicle manufacturer, recently reported disappointing Q3 results, prompting concerns among investors. In the wake of these results, there has been an unusual surge in put options activity, signaling a negative outlook for LCID stock.

On November 8th, LCID was trading at $3.99, down approximately 7.2% for the day. Notably, large put options transactions were observed for the $3.50 strike price with an expiration date of January 19, 2024. The volume of puts traded at this strike price is significantly higher than the norm, indicating a bearish sentiment among investors.

The put buyers are essentially betting that LCID stock will decrease by at least 49 cents, or over 12.2%, within the next 72 days, by the time the put options expire. Given that the puts were traded at 35 cents, this implies that the put buyers anticipate the stock to drop below $3.15 per share before their investment becomes profitable if held until expiration. This represents a decline of 84 cents or over 21% from the current price.

The volume of puts traded at this strike price is 49 times the usual number of put contracts outstanding. In addition, the breakeven price for the put option buyers is below the current $3.99 price, suggesting an expectation that LCID will fall by 21 cents or 5.26% in the next six months. The volume of puts traded at this strike price is 34 times the typical outstanding number of put contracts.

Investors seem to be questioning Lucid’s ability to perform well in the coming months due to its unprofitable status and negative free cash flow. The company’s cash balance is diminishing, and it could potentially run out of cash within less than two years. Lucid may have extra liquidity and the option to conduct a secondary equity offering, but such moves would likely cause a further decline in LCID stock.

One significant concern is the high prices of Lucid’s electric vehicles, with their cheapest EV starting at $75,000, even with a federal tax credit. Lucid’s production figures also fell short of its own targets, indicating a rising inventory of unsold EVs. Many EV makers are facing similar pricing issues, and the pressure to reduce prices could exacerbate Lucid’s cash burn situation.

As a result of these factors, both investors and analysts have become increasingly negative about Lucid Group. Two analysts downgraded their opinions on the stock, citing weaker-than-expected demand, higher interest rates, and electric vehicle price wars. It’s worth noting that one of the analysts has a limited track record of successful price targets. Nonetheless, the overall outlook for Lucid Group appears to be challenging, leading to a surge in put options activity.

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