Beyond Meat (NASDAQ:BYND) stock recently tumbled to its lowest levels since last May’s IPO. Its epic rise and fall has taken place within a single year, and makes BYND one of the most volatile stocks on Wall Street.
After breaking down the price chart, we’ll offer up a limited risk options trade for bulls and bears.
Beyond Meat Stock Correlation
Because of its unique story as a growing provider of plant-based meat alternatives, the company’s shares spent all of 2019 marching to the beat of their own drum. Their relationship to the S&P 500 varied widely. Sometimes BYND moved with the market, and sometimes it ran in the other direction. The random link increased its appeal to traders (and investors, for that matter) because BYND would form trading setups that weren’t available in other stocks that simply mimicked the market.
Unfortunately, the ongoing stock crash is killing Beyond Meat’s individuality. Its 10-day correlation with the S&P 500 just recently rose to 0.96 and is the highest its been since last year’s IPO. So until this strong tie is broken, we should expect BYND stock’s daily behavior to mirror that of the broader market.
Someday, the individual fundamentals of companies will matter. But that won’t come until the panic and hysteria surrounding the coronavirus from China subsides.
Despite the sky-high volatility accompanying Beyond Meat, we’ve seen good trending behavior over the year. The consistency has created multiple breakout opportunities for buyers and sellers along the way. Like the broader market, BYND was bullish just last month. Unfortunately, the selling frenzy unraveled the gains, driving the stock down 50% since February 19th.
As with every other stock on the planet, BYND is now profoundly oversold beneath all major moving averages. It’s in desperate need of a bounce to alleviate the overextended pressures, and create lower-risk entries.
In a situation like this, I usually conclude that it’s too late to short, but too early to buy. If you’re intent on doing something, I’ll toss out a trade idea for bulls and bears that has less risk than trading the stock outright.
Buying stock here is expensive, and since the stock is hard to borrow, you probably can’t short it even you wanted to. Thus, options provide a logical alternative. Since implied volatility is in the stratosphere, spreads are a must to control the cost better.
Bulls: If you want to bank on Beyond Meat stock snapping back over the next month, then buy the Apr $75/$80 bull call spread for around $1.30. Consider taking profits quickly if we rise back to $75.
Bears: If you believe the plunge persists, then buy the Apr $55/$50 bear put for around $1.60.
The low-cost of either position makes it, so you don’t need a stop loss. That way, you’ll avoid getting whipped out due to the insane daily moves we’re witnessing.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!