Tony Zhang's Nio Options Trade

On CNBC's "Options Action," Tony Zhang said Nio Inc - ADR NIO was a poster EV stock last year, but it had a pretty significant pullback this year. He sees the pullback as a buying opportunity going into earnings on Thursday.

The stock broke below the $56 resistance level back in February and it has now completed a triple bottom formation around $35, said Zhang. The stock has recently bounced off its 200-day moving average and broke above the 21-day moving average, which Zhang sees as a bullish sign and the sign of the end of the downtrend.

To make a bullish bet, Zhang wants to buy the August $40 call and sell the May $47 call for a total cost of $5.35. The trade breaks even at $45.35 or around 10% above the closing price on Friday.