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Overbought Stock of the Day: PPG Industries (PPG)

Overbought Stock of the Day: PPG Industries (PPG)

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  • Paint, coating and specialty materials manufacturer PPG Industries (PPG) has recently joined the list of companies trading back at pre-pandemic levels. While that’s a good sign, the company’s most recent move higher has sent shares to overbought levels.

    That can most plainly be seen by the company’s RSI, which touched an overbought reading of 70 on Monday before pulling back. With shares now dropping, the company is starting to ease off its overbought reading. However, shares still look poised for a 10 percent pullback. That would put shares at a more reasonable valuation near the stock’s 50-day moving average.

    Action to take: The January 2021 $120 put, with a bid/ask spread around $3.30, is an attractive trade here. The option should be able to deliver mid-double-digit returns on a pullback on shares in the coming weeks. Traders will be able to exit the trade well before the time premium starts to reach its peak decay. On a major market drop before the end of the year, it’s possible that the option may hit triple-digit returns. Still, traders would be wise to take smaller profits instead.

    While the company is set for a short-term pullback, this is a great holding for the long haul, and investors may want to look at buying shares at or under $120.

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