Overbought Stock of the Day: Acacia Communications (ACIA)
High-speed optical interconnection products company Acacia Communications (ACIA) has seen shares move far higher over the past month. That’s created overbought conditions, and shares now look set for a pullback.
The stock’s relative strength index, or RSI, got into the 80 range, well into overbought territory. Trading since the start of the year has been more muted, with some large intra-day drops. Traders can likely expect some further downside in the weeks ahead as shares digest their recent large move.
Even after the big move in shares, the stock has still underperformed the S&P 500 over the past year. With growing earnings and revenue, traders should look for a small pullback before shares continue to trend higher.
Action to take: The May $70 puts, with a bid/ask spread near $2.50, offer mid-double digit profits on a pullback in shares. On a move back to the mid-$60 range, traders should look to take profits.
Following a 10 percent drop, traders should look for a call-option trade further out to profit from the likely move higher in shares once it comes off its current overbought reading. The January 2022 $80 calls currently have a bid/ask spread near $2.50 as well. On a small pullback to the $2 range, they would make for a solid entry point for the next year.