Overbought Stock of the Day: WD-40 Company (WDFC)
WD-40 Company (WDFC), best known for the brand it’s named after, continues to be a popular name for investors. But given the massive move after the company reported strong earnings, shares look overbought in the short-term.
Shares have rallied by over 20 percent in the past two weeks, and the stock’s relative strength index, or RSI, has now topped 82. Shares have become massively disconnected from their moving averages. Typically, this stock is a slower moving name that trends close to its averages.
Given the gap higher in shares that kicked off the mega-rally, chances are shares will try to fill the gap. Traders should look for a chance to profit from a pullback. With shares up over 40 percent in the past year, and with the company trading at over 50 times earnings, this is a company ripe for a decline.
Action to take: To fill the gap, shares would need to drop back to around $200 per share. The February $210 puts, with a bid/ask spread around $5.85, offer the best potential return relative to the risk.
Should shares drop to the $200 range, the option could nearly double in value to $10 in total. Even if a move takes some time to play out, traders can still earn a massive return on this trade.