Need a ride? These days you’re very likely to call on Lyft (NASDAQ:LYFT) for that service. But if you’re dealing with the stock market, the price chart is saying Lyft stock is a short position worth hailing. Let me explain.
Rideshare operator Lyft continued to disappoint investors on Wednesday. Just over five weeks into life as a publicly traded company, LYFT shares tumbled nearly 11% to fresh all-time-lows.
Behind the session’s hit and run, Lyft stock had a couple drivers to blame. A staged drivers’ strike across rideshare platforms Lyft and Uber by its contract drivers demanding more pay certainly didn’t help matters.
Investors have also been coming to terms with the possibility that Lyft’s IPO may have been aggressively priced. And with competitor Uber debuting on the NYSE Friday, those worries are now coming to a head.
Lastly, a disastrous-looking and larger-than-expected loss of $9.02 per share in Lyft’s inaugural earnings report as a publicly traded company likely forced some investors out.
In all fairness, Lyft’s quarterly confessional did offer investors reasons to be positive. For its part, Wall Street’s analyst community applauded Lyft’s better-than-forecast sales growth, solid ridership numbers and duopoly market positio, while the costly trend of subsidized rides to attract customers is mostly in the rear-view mirror.
LYFT Stock Price Chart
As Lyft stock has been stressing in its short life as a vehicle for investment, buying an IPO out-the-gate or even enjoying a piece of the IPO itself, is no guarantee of having the next Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX) or Apple (NASDAQ:AAPL) in your portfolio.
Every single shareholder who has purchased shares in the open market is now underwater with Wednesday’s humbling decline to all-time-lows. That pain has even been felt by investors who were allocated shares at the Lyft IPO price of $72. But the worst of it may not be over either.
Technically, Wednesday’s drop also marked a breakdown. Lyft stock had been trading laterally for just over three weeks. Coupled with stochastics rolling over from overbought territory and volume heavy, but not showing definitive signs of capitulation, LYFT is a short until proven differently.
Lyft Stock Short Position
For traders able and willing to short Lyft stock, there’s no need to wait in line for a ride downtown. I’d recommend a blended exit above $58 to contain risk. This amounts to exposure of just under 10%.
As a volatile stock, this stop-loss strategy allows for some necessary wiggle room back through lateral resistance, while still respecting the reversal as potentially an important turn-for-the-better for the bull case.
Alternatively and for like-minded options traders, the June 17 $52.50/$45 put spread for $3 looks like a nice reduced-risk and ironclad way to position as a bear.
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 options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.