From ecommerce to real estate to cryptocurrencies, Overstock (NASDAQ:OSTK) has a smorgasbord of unrelated businesses. The company originally started out as a discount online retailer, but intense competition in the space led CEO Patrick Byrne to branch out. Byrne’s moves have been both a blessing and a curse for OSTK stock and its investors.
Throughout all of Overstock’s saga, volatility has been a mainstay. The shares have traded as high as $89.80 and as low as $16.90 in the past year alone. Right now, OSTK stock is near the midpoint, hovering just below resistance at $40.
The $40 region has been a major sticking point for OSTK stock since March. Wall Street has been unwilling to bid the shares north of $40, and for good reason. Overstock’s ecommerce business is struggling, and it’s budding cryptocurrency offerings have received unwanted government scrutiny. The uncertainty surrounding both has put OSTK stock in a holding pattern.
That could change come Thursday afternoon. Overstock is slated to step into the earnings limelight to release its second-quarter earnings results. Right now, Wall Street is expecting Overstock to report a loss of 82 cents per share on revenue of $474.15 million. In the same quarter last year, Overstock lost 20 cents per share and posted revenue of $432.02 million.
Sentiment on OSTK stock is a mixed bag heading into earnings. On one hand, Thomson/First Call reports that the one analyst following the shares rates them a “strong buy.”
On the other, as of the most recent reporting period, short sellers hold about 42% of OSTK’s float short.
Turning to the options pits, we find more bullish sentiment. Currently, the August put/call open interest ratio arrives at 0.49, with calls doubling puts among front-month options.
Amid this optimism, options traders are also pricing in a rather large move for OSTK stock following earnings. Specifically, weekly Aug. 10 implieds are pricing in a 10% move in OSTK stock. This places the upper bound for the expected move at $42 and the lower bound near $34.
Two Trades for OSTK Stock
Call Spread: Trading OSTK stock options ahead of earnings isn’t for the faint of heart. But for those traders with enough risk tolerance, an Aug $40/$42 bull call spread has considerable potential. At last check, this trade was offered at $1.07, or $107 per pair of contracts. Breakeven lies at $41.07, while a maximum profit of $3.93, or $393 per pair of contracts — a potential 267% return — is possible if OSTK stock closes at or above $45 when August options expire.
Put Spread: For those looking to take the bearish angle ahead of earnings, an Aug $30/$35 bear put spread is ideal. At last check, this trade was offered at $1.00, or $100 per pair of contracts. Breakeven lies at $34, while a maximum profit of $4, or $400 per pair of contracts — a potential 300% return — is possible if OSTK stock closes at or below $30 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
