Overbought Stock of the Day: Novavax (NVAX)
Shares of Novavax (NVAX) have more than doubled in the past few trading sessions. The move comes as the company’s Covid-19 vaccine has finally been approved for use. That huge move in a short amount of time has created overbought conditions for shares.
The stock’s relative strength index has vaulted to a reading of 86, well into overbought territory. Shares have gapped higher twice in recent sessions as well. Finally, there’s a massive gap where shares trade relative to the stock’s moving averages.
Action to take: Given the story behind the stock’s rally, a major pullback anytime soon is unlikely. Chances are shares will flatline a bit from here. That will allow them to come off of overbought conditions, rather than face a big pullback.
Traders would be best served by targeting a call option to benefit from a further upside in shares. Then, allow weak trading days to lower option prices to a reasonable price to buy in for the long haul. Shares have moved so quickly that most options trades on the company are all in-the-money.
Traders can likely buy the January 2022 $280 calls on a pullback to the low $80 range to play the further upside. The option currently trades near the lower $90 range, but a few flat or slightly down days for shares should create a reasonable buying opportunity.