Although Chinese electric vehicle manufacturers such as sector powerhouse XPeng Inc – ADR XPEV benefited from significant interest earlier this decade, recent years have witnessed lackluster market performances. Nevertheless, Tesla Inc TSLA CEO Elon Musk recognizes the upside potential of XPEV stock and its ilk.
Last year, during Tesla's fourth-quarter earnings call in January, Musk had choice words for the Chinese EV competition. "Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world. So they’re extremely good."
It's not just empty praise. In the middle of 2024, XPeng announced that it would reorganize its smart driving team in a bid to stay competitive in the autonomous mobility space. Part of this overall directive was the establishment of an artificial intelligence department to concentrate on innovative technologies such as end-to-end solutions.
A few days ago, a Reuters report indicated that XPeng will hire more than 6,000 workers this year, a response to the expected rise in competition. Further, the company seeks to expand its global footprint to over 60 markets in 2025.
The ambitiousness appears justified, especially given November's deliveries count of 30,895 vehicles, representing a 54% year-over-year increase.
XPeng Stock Could Be Due For a Comeback
Although XPeng investors seemingly enjoy multiple fundamental catalysts, the stock simply has not cooperated. Over the past 52 weeks, the security slipped about 17%. Over the trailing five years, it roughly gave up half its market value. Still, some technical factors lend credence to the possibility of incoming upside.
First, the stock appears to be forming a bullish falling wedge. In this pattern, the upper and lower trendlines (which are tilted against the prevailing price trend) converge toward a focal point. The hypothesis is that at or near this apex, the target security will likely break out.
While XPeng stock is down over the past 52 weeks, since late August, it has conspicuously shot higher. Therefore, at the moment, the prevailing trend points northward. Therefore, the falling wedge could be a temporary correction, allowing professional bearish speculators to extract "negative" value before they move onto their next target.
Indeed, while Benzinga's options scanner reported significant bearish activity against the stock, the timing of the data matters. The purchased puts of noteworthy volume all expire at the close of the Friday session. With this cloud soon to be removed, the bulls could potentially move in, pushing XPeng higher.
On a related note, satellite constellation specialist AST SpaceMobile Inc ASTS also printed a falling wedge pattern. After spiking higher from mid-May last year, AST SpaceMobile began correcting since August. From November, a falling wedge formed, eventually leading to today's big swing higher.
Setting Up a Bull Call Spread
Armed with the compelling prospect of a strong upswing coming, traders may consider a relatively simple multi-leg options strategy called the bull call spread.
This transaction involves buying a call option and simultaneously selling a call at a higher strike price for the same expiration date. Primarily, the key concept revolves around taking the credit received from the short call to partially offset the debit paid for the long call.
It’s important to keep in mind that this trade is a capped-risk, capped-reward opportunity; that is, the maximum loss and maximum reward are known prior to inking the transaction. That said, one of the key benefits is that the threshold to profitability is lowered. In a straight call option, the underlying security must rise to the strike price plus the premium paid to break even. In a call spread, the premium is reduced by the short call credit.
For ambitious traders, the 11/13 bull call spread (buy the $11 call, sell the $13 call) for the options chain expiring Jan. 31, 2025, could be enticing. This trade leaves about a month for XPeng stock to hit the short strike price of $13, which roughly coincides with the lower ceiling of the falling wedge's upper trendline.
More conservative traders may opt for the 11/12 bull call spread for the same expiration date. This trade is attractive since the bulls will likely strive toward the psychologically significant $12 level. However, if XPeng stock rises materially above this point, the capped-reward transaction means that the upside performance would be wasted as an opportunity cost.
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© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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