How to Trade a Bloodied Electronic Arts Stock

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EA stock - How to Trade a Bloodied Electronic Arts Stock

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Ever since reporting a delay in the release of Battlefield V, Electronic Arts (NYSE:EA) has been beaten senseless. In the past five days, EA stock is down 13%. And it’s not like the gaming juggernaut was flying high ahead of the unfortunate news. An earnings misstep had already knocked EA well off its peak.

Throw it all together, and the technical picture of Electronic Arts looks like garbage. But with oversold pressures mounting, I think a snap-back could be in the cards. Even down-and-out stocks undergo rebounds from time to time, and I think EA stock is due.

Before revealing my strategy of choice here, let’s dig a bit deeper into the price action.

Since peaking at $151.26, EA shares are down 26%. The downdraft has all but stolen this year’s gains. All major moving averages have been broken, and the 20-day and 50-day are now both careening lower. Volume patterns are also sickly. The last two downswings saw multiple distribution days suggesting institutions were leaning on their sell buttons.

The one indicator that should be giving bears pause (and making bulls interested) is the RSI. At 23, it just reached its lowest reading since 2011. We’ve officially entered grossly oversold territory, which means two things. First, new short trades have a poor risk-reward. Second, bottom fishing is now an interesting proposition.

Source: OptionsAnalytix

Rather than blindly buying now, it’s important to wait for confirmation. EA stock needs to break above a prior day’s high or at least reverse its intraday downtrend to show evidence of turning.

It may need to drop for a day or two before the selling pressure is finally exhausted.

Scaling EA Stock Put Spreads

The fear surrounding this swoon has driven implied volatility to lofty levels. The IV Rank now sits at 51%, which confirms EA option premiums are officially pumped.  To capitalize I like scaling into bull put spreads once the stock confirms it’s turning higher.

Right now you can sell the Oct $105/$100 bull put spread for around 85 cents. Rather than deploying a full position, I like the idea of entering part now, but having the flexibility of adding more contracts later if EA falls further before rebounding.

For example, maybe you enter the first half now at 85 cents and the second half if the put spread ever rises in value to $1.40. This will raise your average credit and make it easier to recoup losses when the stock finally snaps back.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

For a free trial to the best trading community on the planet and Tyler’s current home, click here!


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/how-to-trade-a-bloodied-electronic-arts-stock/.

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