NKLA Market Makers Behavior Hypothesis
Updated
From the behavior of NKLA since it was exposed as a scam in September, it has appeared to hit certain price floors and then stop. For such a volatile stock with huge questions of its legitimacy and ability to remain an ongoing concern, it is striking that the price would sit within a narrow channel for weeks.
Some have theorized that MMs are actively buying and selling within price channels to keep the price from plummeting. They would be doing this so they, their wealthy customers, and the company insiders can exit in an orderly fashion, without alerting the unwashed masses that the house is on fire. This orderly exit keeps the price up while the large blocks are slowly sold off to unsuspecting retail investors.
Additionally, the MMs can sell options contracts for BOTH puts and calls, hedging their risk while taking in large insurance premiums due to the stock's inherent IV, which has run 150-200% for months. By holding it steady, they expire out short contracts.
I believe I've found a pattern in the data. There are 4 periods of unusually calm prices, each running about 7-10 days and holding prices of 24, 22 and 18. There was a runup on the GM deal/no-deal around 12/1, but that dropped back down to the 18 level, again without continuing to drop, but hitting that 18 floor.
If this pattern holds, the floor drops to 16 next week, but it could go to 14 or 12, and then will hold for 7-10 days.
Some have theorized that MMs are actively buying and selling within price channels to keep the price from plummeting. They would be doing this so they, their wealthy customers, and the company insiders can exit in an orderly fashion, without alerting the unwashed masses that the house is on fire. This orderly exit keeps the price up while the large blocks are slowly sold off to unsuspecting retail investors.
Additionally, the MMs can sell options contracts for BOTH puts and calls, hedging their risk while taking in large insurance premiums due to the stock's inherent IV, which has run 150-200% for months. By holding it steady, they expire out short contracts.
I believe I've found a pattern in the data. There are 4 periods of unusually calm prices, each running about 7-10 days and holding prices of 24, 22 and 18. There was a runup on the GM deal/no-deal around 12/1, but that dropped back down to the 18 level, again without continuing to drop, but hitting that 18 floor.
If this pattern holds, the floor drops to 16 next week, but it could go to 14 or 12, and then will hold for 7-10 days.
Note
NKLA appears to be landing at the 16 floor. Barring share dumping or government action, it is likely to hold this position until 12/22.Note
I've updated the idea and it seems to have moved to a 17 floor this week, likely holding until 12/24.Note
As predicted, the 17 floor held until around Christmas, and now is hovering at 16. I'm looking at a 15 floor starting soon and lasting for another 7-9 days, ending around 1/14.
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