Overstock.com Inc (NASDAQ:OSTK) may have missed out on the turn of the century “dot-bomb” implosion but it’s making amends with this era’s cryptocurrency bubble. For bullish speculators, however, it may be time to put some coin into Overstock shares with reduced and defined risk. Let me explain.
Once more, history appears to be repeating itself on Wall and Main Streets. 2017’s mania for anything with ties to cryptocurrency or blockchain technology, has been punctured, which, of ourse, will impact OSTK stock.
Overstock.com is best and most likely only known for its online retailing of deep discounted goods for consumers. However, the company has also become an aggressive early adopter and advocate of the cryptocurrency market.
As investors woke up to OSTK stock’s Medici Ventures crypto-driven business unit this past summer, shares soared higher by over 400% into its early January and record high. Now, and as the narrative has quickly soured for the nascent technology, Overstock has unsurprisingly taken a hit in its share price. So far, the panicked sentiment has pushed OSTK 39% lower in less than a month.
Of course, if you’re like others that invested during the dot-com bubble, as bad as a decline of 39% sounds, it could be small potatoes. Yet, much like Amazon.com, Inc (NASDAQ:AMZN) or eBay Inc (NASDAQ:EBAY ), there will be survivors and possibly huge rewards in this developing market technology. Could OSTK stock be in this category? Maybe.
As InvestorPlace’s Louis Navellier noted this past week, Overstock was approved by the Securities and Exchange Commission to build an alternative trading system or ATS. It has the potential to be huge.
Overstock’s trading platform, which will be named tZero aims to use blockchain to “revolutionize how markets are traded.” Toss in tZero’s own cryptocurrency, chatter that grocer Kroger Co (NYSE:KR) sees Overstock as a competitive acquisition following Amazon’s purchase of Whole Foods, and OSTK stock does have some interesting support off the price chart.
OSTK Stock Monthly Chart
So, what’s next for OSTK following its massive run and now, it’s fairly sizable corrective move? On the price chart, an oversold condition has moved into an area of support backed by multiple Fibonacci levels and a broadening pattern.
But bearish volatility shouldn’t be underestimated. If we dare reference the likes of AMZN or EBAY during the dot-bomb blow-up, both serve as fine examples of what’s possible before becoming market heavyweights and how long those journeys took.
OSTK Stock Bull Call Spread Strategy
Given the possibilities, some of them potentially punishing, for traders that are willing to take on a bullish position in OSTK stock, I’d suggest a longer-term, out-of-the-money bull call spread.
Vertical spreads are a favored strategy as they reduce and define risk, offer flexibility for future adjustments or simply offer great bang for the buck if the stock begins to cooperate.
Reviewing Overstock’s options, one combination that looks attractive is the Jan $70/$85 call spread. With shares of OSTK at $56, a limit order of up to $3.70 offers traders a way to keep risk contained to just over 6% of stock risk for nearly one full year and a profit of $11.30, or just over 300% if OSTK can reclaim 2018’s early glory.
The other bottom line? If OSTK tanks lower and you’re still bullish on the company’s blockchain prospects, this type of position can keep you in the game mentally and financially to take advantage of that much deeper discount.
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.
