Overbought Stock of the Day: Morgan Stanley (MS)
A strong earnings season and political gridlock have led to a sizeable bounce in many financial stocks. Not surprisingly, a number are staring to look overbought. For a downside trade, Morgan Stanley (MS) is ripe for decent returns.
Shares have risen nearly 20 percent in the past month, a massive move for any non-tech company (and most tech companies). That’s sent shares from being fairly valued to overbought.
Yesterday’s rally sent the stock’s relative strength index, or RSI, to 75. And shares are now over 15 percent away from their 50-day moving average, a major disconnect from where shares usually trade.
These factors point to a stock likely to come back down in the coming weeks and giving up some of its recent monster rally.
Action to take: The January 2021 $50 puts are inexpensive at just $0.58. That’s a low price for some downside protection in this high-flying financial stock. And with the stock’s prior move starting around $50 per share, the strike price is reasonable for a pullback.
As with most options trades of this nature, shares don’t need to drop to $50 to profit. Any pullback should deliver high double-digit gains, possibly a triple-digit win, allowing traders to book profits before expiration. Not too bad for a short trade!