Virgin Galactic (NASDAQ:SPCE) shares are sinking this morning on news that Richard Branson is looking to sell a large portion of his stake to help shore up the balance sheet of his other companies that have suffered during the global pandemic. Given the healthy posture of SPCE stock, however, I’d warn against following the actions of the billionaire founder of Virgin Group. If anything, the headlines could be providing us with a golden opportunity to buy.
Mr. Branson is reportedly seeking to unload up to 25 million shares of SPCE stock. At Friday’s closing price of $20.18, parting with that many shares would generate some $504.5 million.
According to a company press release, “Virgin intends to use any proceeds to support its portfolio of global leisure, holiday and travel businesses that have been affected by the unprecedented impact of Covid-19.
Let’s breakdown the recent price action of SPCE stock and identify why it’s a tempting buy into this morning’s weakness.
Fueled Up and Ready to Rise
Since being laid low in early-March, Virgin Galactic shares have been in recovery mode with bulls slowly returning. A series of higher swing lows and higher swing highs has formed to confirm the increased buying aggression. Last month SPCE climbed back above the 20-day moving average, and just last week it finally eclipsed the 50-day. That means the short-term and intermediate-term trends are now soundly in bulls’ hands (hooves?).
Volume has backed buyers along the way as well. Just look at the patterns in the lower panel of the accompanying daily chart. Since mid-March, distribution days have been all but absent and a consistent drumbeat of accumulation has arisen. Last week’s ramp saw strong participation, revealing heavy buying interest right now.
And with last week’s earnings announcement out of the way, there’s no longer the threat of deteriorating fundamental data killing the uptrend. Traders can now swing away for another three months.
Last week’s rally ushered SPCE stock to overhead resistance at $21 and created a clear breakout setup. Before the news (and the stock) dropped this morning, I was planning trade ideas around the looming resistance breach. But with the weak open, we can now get in at lower prices ahead of the breakout.
The primary reason why I’m unconcerned about the news is the stock price’s response. Despite the 5% hit, SPCE is still above its rising 20-day moving average and its nascent uptrend is very much intact. Thus far, dip buyers are emerging to lessen the damage. As I type, the losses have been pared from 5% to under 3%.
Get Paid to Purchase SPCE Stock
The low price tag of the stock coupled with the high implied volatility in its options makes selling puts a tempting strategy if you’re not willing to buy shares now. Think of it this way, you can get paid for your willingness to purchase shares of Virgin Galactic at a steep discount to its current price.
The Trade: Sell the June $16 put for around $1.50.
If SPCE stays above $16, then you’ll keep the $150 received per contract sold. If it sits below $16 at expiration, then you’ll be obligated to buy 100 shares per contract sold at an effective cost of $14.50.
It sounds like a win-win to me.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! As of this writing, Tyler held bullish options positions in SPCE stock.
