Take #2: Time to Stock Up on Overstock.com?
- Posted by Greg Harmon
- on February 25th, 2014
About a month ago I brought your attention to Overstock.com, $OSTK, in Time to Stock Up on Overstock.com?. Technically it had been in a symmetrical triangle ready to resolve. Since then it did resolve. But to the downside. Incidentally, notice how all of the Simple Moving Averages (SMA) crossed when the move took place. It has only moved about 40% of the pattern expectation but is already showing signs that it may be ready to reverse back higher. The Relative Strength Index (RSI) is curling back up. In fact looking at the last move of the RSI off of the lows projects a near full reversal of the down move. The MACD has also hit an extreme low and is turned back up and crossed. These support a move higher. But you need evidence to get in. Look for a break back over 19.50 as the trigger to try this long against the base at 18.15. Conversely a failure and move under 18.15 would look for another $9.50 move lower.
With the reward defined as roughly $10 either way, perhaps a simple March 17.5/20 Strangle makes sense. Currently offered for about $1.45 it would make money on a move below 16 or above 21.50 and defines your risk to the $1.45 in premium spent. I put on a few today at $1.38.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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