The market tide continues to rise, but not all boats are being lifted. Some have gaping holes and are sinking even as everything else floats to new heights. That makes them prime stocks to sell.
Losing money when the broad market is declining would be understandable and forgivable — doing so when the Nasdaq and S&P 500 are both notching new records? Well, let’s just say you have some explaining to do.
They say there’s always a bear market somewhere, but I still find it fascinating that so many stocks are suffering massive drawdowns when the market backdrop is so positive. Sometimes the selling pressure is a simple matter of a particular sector or industry falling out of favor. Other times it’s something more idiosyncratic that’s ailing the company.
As always, I focus on price over narratives. And if there’s one message that these price charts are broadcasting, it’s this: Abandon Ship!
Let’s dig into each candidate and map out a bearish options trade to profit from the pain.
Sinking Stocks to Sell: Robinhood Markets (HOOD)
Off the Peak: -64%
In late July, Robinhood burst onto the public scene, scored two days of glorious gains, and has been sinking like a stone ever since. The selling accelerated Thursday, with HOOD stock falling 7%. Notably, prices fell below their IPO price to a new all-time low. Volume swelled past 12 million shares, and prices closed at the low of the session.
Think about the implications of a stock hitting new all-time lows. It means every single investor who bought the shares post-IPO is losing money. Every one. It creates a bearish backdrop with the masses incentivized to sell shares into strength. With that amount of overhead supply and the price trend seeing renewed momentum to the downside, you must bet with bears here.
The Trade: Buy the January $30/$25 put spread for $1.90.
You’re risking $1.90 to make $3.10 if prices fall below $25.
Off the Peak: -72%
Peloton’s business and share price have crumbled this year. With the stock down 72% from the highs, it’s hard not to agree with those calling PTON another in a long line of fad stocks.
The pandemic played right into bulls’ hands, but the reopening has taken everything back so far. I don’t have a strong opinion on the company’s long-term prospects, but there’s no denying the chart looks atrocious, and there are no signs of a bottom.
On the weekly time frame, PTON stock doesn’t have any support until $37, so I still think there’s plenty of downside until chart watchers have a reason to bottom fish.
Since the disastrous response to earnings earlier this month, prices have continued to sag. And, even when there was a strong pop this week on news that the company raised more money, we saw zero follow-through. So if you think there’s more pain ahead, then buy this put spread.
The Trade: Buy the January $47/$37 bear put for $3.25.
You’re risking $3.25 to make $6.75 if prices are below $37 at expiration.
Sinking Stocks to Sell: Paypal (PYPL)
Off the Peak: -35%
The past three months brought a significant reversal of fortune to Paypal’s share price. It’s lost over a third of its value and boasts a terrible price chart. That made it an obvious choice as the final of today’s stocks to sell.
It’s never a good sign when your stock falls for three weeks straight and still gaps lower on earnings. We saw a slight bounce this week, but sellers swarmed on Wednesday and Thursday to push PYPL stock to a fresh low for the year.
Distribution days have exploded along the way, reflecting a mass exodus from the shares. With the next support zone at $200 about to give way, now’s as good a time as any to deploy bearish trades.
The Trade: Buy the January $200/$180 put spread for $7.25.
You’re risking $7.25 to make $12.75 if PYPL declines to $180.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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