In a perverse way, Overstock (NASDAQ:OSTK) is a casualty of today’s ‘improved’ Covid-19 environment. But for investors wishing for a smart-looking discount, OSTK stock is ready to be shopped when accessorized with a flexible collar strategy. Let me explain.
Strong efficacy results from Pfizer’s (NYSE:PFE) vaccine and the Biden Gridlock Tour receiving additional confirmation over the weekend had many investors wallets out-the-gate Monday. But it would be a big mistake to think November’s second week of seasonal cheer was widespread and bountiful.
While the Dow Jones Industrials garnered the media’s attention as it managed to hit new record highs and close up 3%, a closer inspection of stocks reveals as many returns as new purchases.
The tech-heavy Nasdaq Composite finished off just over 2%, with prized trillion-dollar club members Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) all firmly in the red after reversing early gains. Those influencers weren’t alone, either. Far from it. Among the carnage was OSTK stock.
Pinterest (NYSE:PINS). McDonald’s (NYSE:MCD). Zoom Video (NASDAQ:ZM). Costco (NASDAQ:COST). Peloton (NASDAQ:PTON). Netflix (NASDAQ:NFLX). Shopify (NYSE:SHOP). Each of those diverse market leaders were down big by the closing bell too. It would be fair to include online discount retailer OSTK in those ranks as its shares plunged nearly 14%.
So, what went wrong? Monday’s fallout in Overstock and many of the aforementioned stocks was directly tied to the Pfizer’s ‘great’ news. Investors systematically exited from some of the pandemic’s largest benefactors of 2020’s lockdown and rotated into coronavirus casualties such as airliner Delta (NYSE:DAL), cruise operator Royal Caribbean (NYSE:RCL) and casino stock MGM Resorts (NYSE:MGM).
Yay to Pfizer, right? OSTK stock investors would likely digress.
An Opportunity in Overstock?
The question now is whether Wall Street’s bearish reaction is an opportunity to purchase OSTK at a more attractive valuation. Cautiously, the answer is yes.
To be fair to an investment in Overstock, lining up Americans and the world population for vaccines won’t be easy. Even if everything goes according to plan, most of us won’t receive a shot until next spring. Given spiking positivity rates and lockdowns being revisited as winter’s wrath enters the picture, that should provide more good tidings in the coffers in a name like OSTK, right?
On the other hand, it’s not all good news for Overstock, which mindfully could be at the expense of Americans’ well-being. There is also worry an already gridlocked Congress won’t reach an agreement on a second round of stimulus money in front of the holidays, with many people still out of work or underemployed. And yeah, reasonably that could act as a continued drag on OSTK shares.
OSTK Stock Weekly Price Chart
Source: Charts by TradingView
If OSTK seems like a bit of Catch-22 situation and possibly the antithesis of an ESG investment, it could be. But at just over $3 billion in market cap, enticing fundamentals where value and growth potential are colliding, and selling pressure that has a strong whiff of irrational fear mixed in, I like what I’m seeing as a buyer in Overstock. I’m also keen on what’s taking shape on OSTK’s price chart.
Currently, OSTK stock is testing its 62% retracement level tied to its rally from its March Covid-19 low to August’s all-time high. Obviously, unlike most of Monday’s other sell-off victims, the fallout in Overstock is far from new. But the stock’s bearish cycle now looks to be working to the buyer’s advantage.
The observation is, the entirety of Overstock’s price action appears to be within the framework of a bullish Fibonacci-based Gartley formation. That said, I’d be wary of buying Overstock shares as a standalone investment right this minute.
As the weekly illustration also reflects, ‘wing 2’ still has some wiggle room to the downside, before and if a more symmetrical-looking Gartley might complete. Without feeling entirely confident a pattern low is nearby but still seeing enough value to begin a starter position, I’d propose the purchase of a slightly unorthodox, above-the-market collar.
If shares pleasantly begin to trade higher, sooner rather than later, this trader will be rewarded as the put strike goes in-the-money. Synthetically, the investor is long a call at the purchased strike.
Alternatively, and if our worst fears (well, not entirely) are realized and Overstock shares trade towards an even deeper challenge of pattern support, this type of flexible, limited and reduced position will put the investor in great position to adjust and accumulate shares when there really is blood in the streets and in anticipation of better days ahead.
On the date of publication, Chris Tyler held, directly or indirectly, positions in Pinterest (PINS) and its derivatives, 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.