If you are in to speculative trading opportunities, Overstock.com Inc (NASDAQ:OSTK) has you covered. The company is expected to report earnings within the next two weeks. There is also speculation that Kroger Co (NYSE:KR) is interested in acquiring Overstock.com. Finally, CEO Patrick Byrne has expressed interest in ditching ecommerce in favor of cryptocurrencies.
That’s quite a lot to take in. Luckily, the last two points dovetail. In early December, Bryne set up a joint venture called De Soto, Inc. with economist Hernando de Soto to develop a blockchain-based global property registry system. Overstock.com is leveraging the blockchain venture with its subsidiary Medici Ventures and is modeling the business after bitcoin’s blockchain.
Combine Bryne’s interest in ditching ecommerce with Kroger’s need to compete online with Amazon.com, Inc. (NASDAQ:AMZN), and you have the real possibility of a deal in the making. Kroger has been looking for a buy-in for ecommerce ever since Amazon bought Whole Foods last year, and Overstock.com has been on it’s short list for a while.
If a deal is going to be announced anytime soon, Overstock.com’s quarterly earnings report would be as good a time as any for gleaning information. The company has yet to set a date, but EarningsWhispers.com estimates a report date of Feb. 13.
Wall Street is expecting Overstock.com to post a loss of 3 cents per share, up considerably from a loss of 7 cents in the year-ago period. Revenue is seen flat at $526.18 million.
Click to Enlarge Technically speaking, Overstock.com stock is at an excellent buy point for speculative investors. The shares are down sharply from their January highs near $90, but OSTK has found solid support. The stock is in the process of bouncing off its 50-day moving average in the $65-$66 region. The last time Overstock.com stock tested this area, the shares went on a significant run higher.
On the sentiment front, there is plenty of room for growth. According to data from Thomson/First Call, Overstock.com stock has attracted only one analyst rating, a “strong buy.” More coverage could go a long way toward bolstering the shares.
Turning to the options pits, we find more bullish sentiment. Currently, the March put/call open interest ratio arrives at modest reading of 0.68 as traders cautiously bet on a rebound in OSTK shares.
Overall, March implieds are considerably high. Given the potential for earnings, a buyout and Overstock.com’s cryptocurrency leanings, this shouldn’t be a surprise, however. That said, implieds are pricing in a potential move of about 24.6% for Overstock.com stock heading into expiration. This places the upper bound at $83.50, while the lower bound lies at $50.50.
2 Trades for Overstock.com Stock
Call Spread: Trading Overstock.com stock options isn’t for the faint of heart right now. But, for those traders with enough risk tolerance, a March $70/$75 bull call spread has considerable potential. At last check, this trade was offered at $1.49, or $149 per pair of contracts. Breakeven lies at $71.49, while a maximum profit of $3.51, or $351 per pair of contracts — a potential 135% return — is possible if Overstock.com stock closes at or above $75 when March options expire.
Put Spread: Alternately, the cryptocurrency situation is tenuous at best, and Kroger could very well go with another option. A combination of these factors could send Overstock.com stock plunging. Traders looking to bet bearish might consider a March $55/$60 bear put spread.
At last check, this trade was offered at $1.51, or $151 per pair of contracts. Breakeven lies at $58.49, while a maximum profit of $3.49, or $349 per pair of contracts — a potential 131% return — is possible if Overstock.com stock closes at or below $55 when March options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
