While things may still be uncertain on this morning after Election Day, the vote is in on Pinterest (NYSE:PINS). Bulls see it as a near-term winner. Let’s see what’s happening off and on the price chart of PINS stock and how some of today’s investors can get on board to profit with more confidence.
Pinterest is a MAGA stock. That is, Making Arts-and-crafts Great Again, as its recent earnings report showed. The online visual discovery platform has helped people in the U.S. and abroad cope with sheltering in during the novel coronavirus pandemic. Left with more time on their hands, the platform has helped to make life a bit more fun, enjoyable and useful.
So, it shouldn’t be a surprise that PINS delivered solid all-around results for its third quarter. Actually, and despite an early bullish indication from social media platform Snap’s (NYSE:SNAP) stellar and well-received results, the quarterly report proved just that in a noticeably big way for conservative analysts and investors alike.
Headlining the Q3 report, Pinterest delivered profits of 13 cents per PINS stock share on sales of $443 million which easily topped Street estimates of 3 cents and $383.5 million. Monthly active users (MAUs) also topped views, fueled by 46% international growth. And importantly, the report helped lay to rest any lingering advertising concerns.
During the quarter, Pinterest saw an increase in spend by larger advertisers which allowed more than a few investors to breathe more easily. This past summer many corporate heavyweights boycotted social media as part of the #StopHateForProfit movement. Those actions began as ad boycott against Facebook’s (NASDAQ:FB) hate speech and misinformation policies but spread quickly across online platforms, spreading fears of a larger and longer-lasting negative impact on ad revenues. Yikes!
Critically, Pinterest’s Q3 also showed broad demand from many other businesses which have learned to adapt to today’s more socially distanced way of life.
In the spirit of fairness, PINS stock’s quarterly confessional wasn’t all rainbows and puppy dogs. And it did provide bearish investors with a bit of ammo. Management cautioned it continues to navigate the pandemic’s challenges. The company also warned it’s unsure just how sustainable Q3’s ad spending trend might prove.
But if Wall Street hates uncertainty, it has an odd way of showing it as Pinterest shares dazzled by crafting a massive 27% price jump to all-time-highs.
PINS Stock Price Daily Price Chart
Source: Charts by TradingView
So, what now? The truth is 27% and gains of roughly 37% at its intraday highs in the report’s immediate aftermath is a lot for any company, even one poised to deliver 60% year-over-year growth for its fourth quarter. And that view is coming from a biased long position in PINS stock. But following a modest consolidation, shares are now setting up in a simple three-day pullback pattern for select investors.
For technical-oriented swing traders, a move through the high of Monday’s doji-hammer candlestick is one means to buy shares with theoretical defined risk tied to a stop-loss beneath the price formation. Realistically though, gap risk is elevated with the election. And there’s always the chance of a less desirable outcome and larger-than-expected losses. So, is the advice “stand down and stand by?” Not quite.
Bull Call Alternative
For investors typically comfortable with this type of daily chart exposure, my suggestion is to purchase a modestly out-of-the-money, shorter-term Pinterest bull call spread rather than stock. With one point strikes and sufficient liquidity, there are a lot of variations to consider. But given the pattern and stochastics out-of-position, the November $60 / $65 call spread or $63 / $66 call vertical are favored combinations.
Bottom line, this type of strategy guarantees risk and amounts to pittance of the cost of owning shares. At the same time, a vertical of this kind reduces exposure to the Greeks by selling further out-of-the-money premium while still offering solid leveraged profits, if a simple pullback can turn into a classic trading lesson for future textbooks.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in Pinterest (PINS) but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.