Is NIO stock a good candidate for Covered Call writing?

Greeting from Tbilisi!

Yesterday I did my first 7k fun adventure race at the steep hills of Mtastminda in Georgia.

That was an awesome run. Can’t wait for more races. Finished 98th among 128 participants. My time was 1:03:23. the winning racer did it half the time.

Now, back to the topic - NIO stock and covered call writing on it

Nio Inc. is a Chinese multinational automobile manufacturer headquartered in Shanghai, specializing in designing and developing electric vehicles. The company develops battery-swapping stations for its vehicles, as an alternative to conventional charging stations

I have been trading options with great success on NIO stock since 2020, I made a good income from put selling while the stock was trading around $5 per share:

I stopped selling puts on NIO, once it reached $25 per share. Now Nio again is trading where it was trading back when I started and I decided to take a look - is it a potential candidate for call writing or put selling?

Looking at the above chart I don’t see anything good, just a downtrend. The stock has been in a downtrend since the end of 2021.

On the other hand, most EVs are in a downtrend. Take a look at Tesla's stock

The pattern is the same both for the NIO and TESLA.

The 27 analysts offering 12-month price forecasts for NIO Inc have a median target of 12.27, with a high estimate of 24.84 and a low estimate of 8.01. The median estimate represents a +47.30% increase from the last price of 8.33

This is not trading advice. Investments in stocks, funds, bonds, or cryptos are risk investments and you could lose some or all of your money. Do your due diligence before investing in any kind of asset

Covered Calls on NIO

On April 24, 2023, we could buy 100 shares with NIO stock for USD 833 and sell May 26, 2023 expiry 9 strike call options for that getting an instant premium of about 0.46 per share or $46 per contract.

What happens next?

On the expiry date, May 26, 2023, NIO is trading under $9 per share -  options expire worthlessly and we keep premium - if NIO trades above $9 our share gets called away, but we realize a profit from price appreciation ($67) and from the premium received ($46). In total $113 in about 30 days, or about 13.56% potential yield.

Break-even price: $8.33+$0.46= $7.87

Now, the biggest problem with covered calls and such volatile stocks like NIO - the stock price can drop significantly and you can never really fully recover from this trade.

If NIO is something you are not looking to hold for the long term, you could also sell put options, thus still taking a juicy premium, thus limiting the possible buy price.

Put options on NIO

On April 24, 2023, we could sell May 26, 2023 expiry 7 strike put option for that getting an instant premium of about 0.25 per share or $25 per contract.

What happens next?

On the expiry date, May 26, 2023, NIO is trading above $7 per share -  options expire worthlessly and we keep premium - if NIO trades under $7 on the expiry date, we risk getting assigned 100 shares, and will have to buy them paying $700

But as we already have collected a premium of $0.25 per share, our break-even price for this trade is $7-$0.25 = $6.75

In case of an assignment, we can still turn this trade into a wheel strategy and start selling covered calls. Just our entry price is much lower than buying instantly and bearing the risk that the stock could fall instantly.

I'm not advocating for put options, I'm more saying put options on such volatile stocks like NIO might give some small advantage at least on the break-even price.

How about you? What are your thoughts on NIO stock and options trading?