Options Corner: Accelerating Trade War Tensions Risk Clipping Joby Aviation's Wings

In theory, President Donald Trump's tariffs protect American companies from foreign competition. In reality, the globalized supply chain makes levies a particularly convoluted matter, especially because other countries can retaliate. With the latter narrative panning out, electric vertical takeoff and landing (eVTOL) specialist Joby Aviation Inc (NYSE:JOBY) is suspect. While the underlying business is compelling, the pivot toward a new economic paradigm is not.

Much of the reason why the market tumbled on Monday has to do with a Fox News interview with President Trump the day before. During a segment under "Sunday Morning Futures," Trump refused to directly predict the possibility of a recession. He did acknowledge "a period of transition," though the president framed the discussion as a means of "bringing wealth back to America."

Nevertheless, one of the central concerns about the tariffs was the potential for pushback. Not surprisingly, affected nations have not taken kindly to President Trump's rhetoric, with China retaliating with tariffs of their own on major U.S. agricultural imports. While agriculture obviously has little to do with eVTOL specialists, the broader implication is that the Trump administration may be willing to absorb significant economic pain to see through its agenda.

If so, this framework imposes a dark cloud over capital-intensive enterprises like Joby Aviation. The problem with JOBY stock is that the valuation is mostly tied to what the company may do in the future, not what it's doing right now. This is a business that's losing money and is hardly generating any revenue.

Of course, this setup undergirds the speculative potential of JOBY stock: if the company itself performs as forecasted or better, the security could skyrocket. On the other hand, if the business struggles to achieve its lofty goals of pioneering a new wave of air mobility solutions, then the equity could correct sharply.

Unfortunately, the market sees the negative outlook as more realistic. After all, the eVTOL industry — especially efforts to build supply chain capabilities — is capital intensive. With the economy struggling, now isn't the ideal time to bet on JOBY stock.

Worrying Technical Signals Cloud the Narrative for JOBY Stock

Beyond the fundamental concerns for JOBY stock, the technical picture is also uninviting. While not a perfect picture, JOBY appears to be in the final phase of a bearish head-and-shoulders pattern. As such, even optimistic investors may want to wait before considering a long position.

Back in late November, JOBY stock saw a rally surge to near $9 before temporarily pulling back. This peak appears to have represented the first shoulder of the aforementioned pattern. In early January, JOBY soared above $10, creating a distinctive head. Under a classic head and shoulders, the equity should have popped back toward $9. This projected move appears to have been aborted, with the stock skipping the bull-trap theatrics and instead falling decisively downward.

What adds to the anxiety is that Archer Aviation Inc (NYSE:ACHR) also appears to be in the final leg of a head-and-shoulders pattern. In fact, in mid-January, I warned about this formation materializing, although the timing of the bearish trade was off. Still, with the economic picture becoming clearer (albeit in a pessimistic light), the bears just might have the wind at their back.

Finally, another factor that could sway the trade in the hands of speculative pessimists is the statistical backdrop. Since JOBY's public market debut, the equity features a negative bias. A one-week long position only has a 43.11% chance of rising. Over eight weeks, this baseline probability slips to 41.74%.

One wrinkle to consider, though, is the response to sizable selloffs. Last week, JOBY stock slipped about 6%. Under similar circumstances, speculative bulls have demonstrated the occasional propensity for acquisitive behaviors.

Still, Monday's sharp decline needs to be taken into account. Historically, investors have largely shied away from JOBY stock when it encounters significant volatility, defined as one-week losses between 10% and 20%.

Extracting ‘Negative Value' Out of Joby Aviation

With the above intelligence in mind, there are two approaches for JOBY stock. First, as stated earlier, buy-and-hold types may want to wait out the volatility. Technically and statistically, the risk is arguably quite high that more red ink may materialize before JOBY reaches a stabilization point.

Second, for the daredevils, one could consider a bearish options strategy. Specifically, the 6.00/5.50 bear put spread for the options chain expiring April 25 seems reasonable. This transaction involves buying the $6 put (at a $65 ask) and simultaneously selling the $5.50 put (at a $30 bid).

In this trade, the proceeds from the short put partially offsets the debit paid of the long put, leading to a cash outlay of $35 — the most that can be lost. On the flipside, the most that can be gained should JOBY fall to the short put strike at expiration is $15, or a payout of 42.86%.

While the reward isn't the most robust, prior pricing dynamics for JOBY stock suggest that this transaction is realistic. However, for those who really want to push the needle, speculators may consider the 6/5 bear put spread for the options chain expiring April 17. This trade offers a payout of over 122%. Still, JOBY must fall to or below $5 at expiration, which is a considerably riskier proposition.