Shopify Stock Pulls Back After Downgrade

Shopify stock was overbought heading into today

by Patrick Martin

Published on May 13, 2019 at 9:15 AM

The shares of Shopify Inc (NYSE:SHOP) are down 4.5% in electronic trading this morning, after Guggenheim downgraded the e-commerce name to "neutral" from "buy." Ken Wong, the analyst in coverage, notes that while he still regards the retail name as a "disruptive force," he sees a capped potential in the stock's valuation and believes many investors have already priced in revenue beats the next two years. 

Heading into today, Shopify stock's 14-day Relative Strength Index (RSI) closed Friday at 73, suggesting the overbought stock may have been due for a short-term drop. The shares raced to a record high of $266.72 on May 6, but have since consolidated just below here. And today's pullback could find support at SHOP's 20-day moving average, a trendline that's supported the stock since February.

In the options pits, speculators have been more put-skewed than usual among contracts expiring over the next three months. This is based on SHOP's Schaeffer’s put/call open interest ratio (SOIR) of 1.76, which sits in the 79th annual percentile.

Options look to be an ideal vehicle to bet on SHOP at the moment, with the security's Schaeffer's Volatility Index (SVI) of 41% ranking in the 14th percentile of its annual range. This indicates short-term options are currently pricing in relatively low volatility expectations -- a boon to potential premium buyers.

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