Tuesday Update: New Special Situation Stock - OSTK

by Blue Line Trading

Overstock (OSTK) is being added to the Special Situations portfolio. Buy on a close above $55.00

We have been suggesting exposure to bitcoin through Greyscale Bitcoin Investment Trust (GBTC) as a direct play on the price of bitcoin. We are expanding that bitcoin exposure with the addition of Overstock (OSTK) to the Special Situations portfolio. Apart from their exposure to bitcoin, which is discussed below, yesterday (Monday) Morgan Stanley disclosed that they have taken a passive stake in the company amounting to 11.4%. 

The Bullish Case

(1) Back in 2014 OSTK became the first major online retailer to accept bitcoin for payment of sales. That should put them way up on the learning curve as other major retailers follow;

(2) On December 18th OSTK will be launching its own initial coin offering ("ICO") hoping to raise between $200M and $500M;

(3) As Overstock has been accepting bitcoins since 2014, a time when bitcoin was trading around $500, we can assume that they have quite a stockpile. Initially they retained 10% of bitcoin earnings, but in August of this year they bumped that retention up to 50% of earnings. Back then bitcoin was trading at around $4K-$5K, and Overstock was seeing bitcoin spending coming in at about $50K per week;

(4) This bullish turn-around by one of the markets most notable and outspoken short-sellers: 

"Long-time short seller Marc Cohodes first heard about Overstock's blockchain investments in May. He then visited Byrne [Patrick Byrne, CEO] in June, the first money manager to do so in a decade. The meeting turned Cohodes into a buyer of the stock.
"You're not paying anything for blockchain and you're getting retail at a steep discount," the independent investor said in a phone interview last week. "I think the stock's going to go to $100," or 230 percent above Monday's close." - CNBC
(5) OSTK has been trending very well based upon both its daily and 240 minute trend charts. But right now it is below both trend lines. We want to take the next Buy Signal, a close above $55.00 It was as high as $65.70 last month, and as high as $59.95 earlier today, before backing off later in the session. This stock moves fast, up from $14 in August. We will be trading both sides of OSTK, starting with the next Buy.  

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