Overbought Stock of the Day: Comcast (CMCSA)
Shares of Comcast (CMCSA) gapped higher last week on news of a Covid vaccine. Best known as a cable television operation, the firm owns substantial entertainment assets including theme parks. The news of a second vaccine boosted shares further, which now look overbought.
The stock’s relative strength index, or RSI, just topped 71 in trading on Tuesday. That’s at an overbought level. On previous overbought levels in the past few months, shares have managed to pull back 5-10 percent.
Traders betting on vaccine news are still months ahead of a delivered vaccine and government regulations allowing full capacity. That optimism will likely fade away, leading to the next mini-decline in stocks.
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Action to take: The January 2021 $45 puts, last trading for about $0.57, are an inexpensive downside bet. Traders should look for mid-double-digit gains on a 5-10 percent pullback. Given the steep rise in shares, a drop to the $45 range looks likely, so the option could even move in-the-money. The $45 price is also about in line with the company’s 50-day moving average, so it’s a price point where shares would likely stop declining and reverse back to a rally.
This is another great stock for swing trading, so following a drop closer to $45, traders would want to close out this trade and look at buying a call option. Depending on how quickly the pullback occurs, a March strike date would make the most sense.