For decades, the concept of flying cars long dominated the imagination of science-fiction writers. However, a wave of specialist enterprises — in some cases backed by institutional juggernauts — aims to turn fantasy into reality. One of these names is Joby Aviation Inc JOBY, which is making a strong case as it jostles for pole position against rivals such as Archer Aviation Inc ACHR and Eve Holding Inc EVEX.
Technically, the performance of JOBY stock is difficult to deny. Since the beginning of this year, the security has almost doubled in value. In the trailing 52 weeks, it has returned more than 200%, to the delight of its earlier investors. Even better, the fundamentals appear to justify the notion of a sustained rally.
Specifically, Joby represents the electric vertical takeoff and landing (eVTOL) sector’s most advanced player, as demonstrated by a string of landmark test flights. Some of the achievements include the first airport-to-airport eVTOL journey in the U.S., along with a rapid ascent through the FAA’s certification process.
In addition, Joby enjoys strategic alliances with Toyota Motor Co TM, Delta Air Lines Inc DAL and Uber Technologies Inc UBER. As such, the eVTOL specialist commands massive commercialization potential.
Of course, not everything about the enterprise is enticing. Because of the tremendous performance — especially with JOBY stock gaining 135% in the trailing half-year period — questions have surged about its rich valuation. Also, Joby must demonstrate that it can convert its milestones into a substantive business.
Subsequently, it’s not terribly surprising that JOBY stock was one of the biggest losers of the day. Still, the red ink could open a contrarian opportunity for aggressive traders.
Why JOBY Stock Could Be Due For An Inversion
At the moment, the short interest of JOBY stock comes in at 8.72%, with a short interest ratio of 1.92 days to cover. Ordinarily, this reading would be considered elevated though not particularly at risk for a short squeeze. However, as JOBY potentially comes under pressure as investors digest its blistering performance, the relationship between price action and short interest could invert, setting up a bullish trade.
Primarily, securities that attract high short interest counterintuitively present the potential for explosive upside. All short positions are inherently credit-based transactions. Functionally, a short position occurs when a security is sold, with the aim that the security will eventually fall in value. If it does, the speculator can buy back the shares at a discount relative to the original selling price. This allows the shares to be returned to the lending creditor (broker) while the difference is pocketed as profit.
However, the key wrinkle regarding short trades is that the creditor must be made whole, irrespective of whatever happens to the target security. So, if the stock rises in value, the threat of devastating tail risk — or the danger of an obligatory payment due to the underwritten risk being realized to the extreme ends of the distribution — looms exceedingly large.
As stated earlier, the current short interest may not be that high to warrant danger for the bears. However, in June of last year, short interest exceeded 11% of the float, which would be considered a possible warning sign. Subsequently, with JOBY stock suffering volatility, the bears’ attention may become aroused, thus driving up short interest.
Given the strong support for the equity, though, retail investors may be tempted to buy the dip. As such, there could be an eventual inversion — what one might colloquially call a switcheroo. With short interest popping higher, JOBY bulls may call the bears’ bluff.
If shares move in the direction opposite of what the pessimists anticipate, the resultant feedback loop — known as a short squeeze — could send JOBY stock rocketing higher.
A Staggered Approach For The Discerning Speculator
Due to psychological implications and prior milestones, a bullish target of $20 almost seems like a foregone conclusion. However, it’s not entirely clear when such a target may materialize as speculation on short interest (and more specifically short squeezes) is extremely difficult to pinpoint. As such, a staggered approach of buying JOBY stock outright wouldn’t be a bad idea.
As for an options-specific trade, I’m very tempted by the 17/18 bull call spread expiring Nov. 21. This transaction involves buying the $17 call and simultaneously selling the $18 call, for a net debit paid of $40 (the most that can be lost in the trade).
Should JOBY stock rise through the second-leg strike price ($18) at expiration, the maximum reward is $60, a payout of 150%. The breakeven for this trade is currently $17.40, which is roughly 8% above the current market price.
Without question, this is an aggressive wager. However, if short interest rises from here, you can reasonably expect the retail folks to attempt to blow up the bears. By securing a position now, you may be able to get ahead of this potential wave.
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