Why I Trade This “Junk Stock,” And Don’t Care If It’s a Fraud
Mike Carr likes to make fun of me for this, but my main brokerage account is Robinhood.
Robinhood is probably the least technical broker available. It’s not the place to go for charting tools or watching options order flow. It was developed to cater to a mainstream audience.
It’s simple… Something a lot of traders look down on.
But I’ll tell you what… That hasn’t stopped me from making money.
Just the opposite.
The software is easy to use. It’s clean and user-friendly.
It’s so streamlined, I’ve literally used it for day trading (don’t try it at home, folks!). I can get in and out of trades in the blink of an eye.
And they don’t even charge for options trades!
I have no shame in using it…
But Robinhood isn’t my only financial red mark.
One of my favorite stocks to trade, which I’ve made a TON of money on … is most likely an outright fraud.
I LOVE This “Junk Stock”
I’m talking about electric vehicle welterweight Nikola Corporation (Nasdaq: NKLA).
This is a junk stock if there ever was one…
The company hasn’t released a product yet. It keeps cutting its production target. And its founder, Trevor Milton, was just indicted by a federal grand jury for lying about “nearly all aspects of the business.” He had to sell 7 million shares of NKLA to pay for his legal fees.
For heaven’s sake, the company pushed a prototype truck down a hill for an ad in 2018 and claimed it was “fully functional.”
Friends, this is as close to watching a real live dumpster fire in the public markets as you can get.
But I’m still not selling…
I’ll admit it, I’ve loved the company ever since it went public.
“How much guts they must have to name their company ‘Nikola,’ and try to compete with Tesla,” I thought. There’s something childish about it, but in a way that makes you smile.
It is a junk stock, through and through. I’ll be the first to admit it.
You’ve heard of junk bonds — they pay a high yield in exchange for a higher risk of default.
Junk stocks are more or less the same in theory. The stock might go bankrupt. It might also rise 500% in a year.
And I’d rather be wrong about a broken business and lose 100% than risk missing out on a multi-bagger that takes everyone by surprise.
I wouldn’t be so stuck on Nikola if I hadn’t already made this mistake in Nio (NYSE: NIO).
I remember when Nio first went public and it was branded as the “Tesla of China.” But I didn’t buy when it went public. And that was a smart move. The stock ended up falling 85% from $10 a share down to $1.50.
I didn’t buy then, either. Because, well, the stock had been hammered. It looked downright poisonous.
Wrong move. I missed out on a 5,800%+ gain from bottom to top, as Nio soared to $60 roughly a year later.
You better believe I carry that regret with me…
But I learn more from my mistakes than my victories — and I never make the same mistake twice!
I own and trade Nikola as a pure speculation on human psychology. Investors are hungry for electric vehicle stocks, and if the company ever gets around to producing an actual product, the stock will soar.
If they don’t go bankrupt before then…
Has Nikola Found a Bottom?
I’m probably ripping on Nikola a little too hard, but to be fair, it’s hard not to.
Still, I have no intention of selling.
In fact, I think there’s a possibility Nikola has already seen a bottom.
After falling as much as 90% from its all-time high, Nikola is clearly testing a floor on its price chart.
At the same time, the stock has nearly doubled in price on four separate occasions over the past year as well…
This is why I love trading the stock. Retail investors are obsessed with it and there’s so much movement.
It’s also why I won’t care in the absolute worst-case scenario that the company goes bankrupt. I’ve already made a lot of money trading options on it.
I would keep an eye on this stock. It dropped 5% yesterday, so the stock might retest its floor again.
But on a sign of sustained strength, I’ll jump back in on some call options.
Chief Editor, True Options Masters
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