Is it time to shop-the-drop in Shopify Inc (US) (NYSE:SHOP)? If, like me, you demand a good deal but also worry about defective merchandise, then a bull call spread makes plenty of sense in SHOP stock. Let me explain.
Andrew Left of Citron Research recently targeted Shopify. And as a notorious short seller, his call left its mark on SHOP stock. But more on that in a moment.
Behind the bearish swipe, Citron Research maintains the company is nothing more than a multi-level marketing, or MLM, scam. Left contends Shopify’s only business is “a completely illegal get-rich-quick scheme” built on a good software platform and the business of deception.
But is Shopify really a scam or just a sham as another investor recently contended? My takeaway is Shopify may be reprehensible, but the company doesn’t appear to be illegal as Citron Research claims.
I’ll also note that outside of his infamous bearish call on Valeant Pharmaceutical Intl Inc (NYSE:VRX), many of Mr. Left’s other market calls have proven highly profitable for bulls in the weeks and months following a short recommendation.
Shopify Daily Price Chart
Click to Enlarge
Now and just two weeks after wreaking havoc for some investors—SHOP is offering bulls a nice technical opportunity. Supporting this view is Shopify’s confirmed weekly chart hammer low which found support within a recent first or maybe second-stage base. That’s bullish.
Also attractive, the correction of 28% helps diffuse some excessive animal spirits while still being quite common in its depth following a large price run. Furthermore, with short interest of just 5.6% not so heavy as to indicate an overt red flag in SHOP stock—it’s time to design a smarter way to shop for a long position with SHOP options.
Shopify Bull Call Spread
Click to Enlarge
Reviewing Shopify’s options, one combination that’s looks well-suited based on the chart and for positioning through earnings next month is the Nov $105/$115 bull call spread.
With shares at $98.93, the combination is priced for $2.55 and maintains roughly 2.5% of SHOP stock risk.
This Shopify vertical sharply reduces risks associated with options Greeks and per contract dollar exposure while offering the bullish trader a limited-risk position with strong profit potential should the SHOP price chart and Mr. Left’s track record provide another opportunity for bulls.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
