Oversold Stock of the Day: Dell Technologies (DELL)
Dell Technologies (DELL) hasn’t quite followed the tend of other big-cap tech companies. Shares of the manufacturer and seller of computer hardware and other equipment have hit oversold levels much faster than other tech names in the current market drop. It now makes for a solid rebound play.
The oversold reading has triggered as shares have dropped from $70 to $60 in just a few trading days with no intervening rallies. The company’s relative strength index has dropped to 25. The share performance on Thursday indicates that bears may be giving up on selling shares in the short-term.
If that’s the case, a rebound off oversold levels will likely take the company to its 50-day moving average of $66. That’s a full 10 percent higher for shares. Such a move is likely. Why? At current prices, investors can buy the company’s stake in VMware and get the Dell side of the business for free.
Action to take: The January 2021 $60 calls are right at-the-money. They should move higher dollar-for-dollar with shares. The option currently trades for around $4.75.
If shares hit $66, the option will be worth at least $6, for a 26 percent return plus any remaining time premium. And there should be plenty of premium left in the trade before expiration. So look for a return closer to 50 percent with this oversold trade.