You Could Earn 15% in 45 Days to Exercise Patience on Stoneco
So many stocks are overbought currently that it’s hard to find a good stock to buy without being concerned about a short-term pullback. I ran a scan of S&P 500 stocks on January 6, and 320 members of the index have weekly stochastics readings above 70. The rally in the overall market over the last few months has created the current situation.
Each month I build a list of stocks that meet certain fundamental requirements and then I keep an eye on the weekly charts, trying to find a good entry point to buy the stocks that I am interested in. Over the last few weeks, it has become harder and harder to find stocks that I like AND like the current price.
I can exercise patience and wait to see if the stock pulls back, or in some cases I can write puts on the stock and see if the stock drops down to what I see as a support level. In some cases, it doesn’t make sense to write the puts because the reward for making the trade doesn’t outweigh the risk. One stock that hit my radar in the last few days that I believe it makes sense to write puts on is Stoneco Ltd. (STNE). The fintech software company has rallied sharply since May, but it is tremendously overbought.
There is a trend line that connects the lows from the last seven months and that trend line is down near $65 at this time. The stock is currently trading just above $80, so we are talking about a difference of 18.75% between the current price and the trend line.
The February $67.50-strike puts are selling for $1.25 currently, or $125 per option contract, and the margin requirement to sell the puts is $800. If the options expire worthless on February 19, that would mean a return on margin of 15.6% in just 45 days.
As far as I’m concerned, the key to writing options is that you have to like the stock and want to own it. The fundamentals have to make sense and make it attractive. If we look at Tickeron’s Fundamental Analysis screener, Stoneco scores well on its P/E Growth Rating and the SMR Rating, Outlook Rating, and Price Growth Rating is average. The Valuation Rating and the Profit vs. Risk Rating are both poor, but that goes along with the overbought levels we see on the chart. Should the stock drop 15-20%, those ratings should improve.
On the technical side, Stoneco has received short-term bearish signals from five different indicators in the last 11 days. This suggests that a pullback is coming.
If the technical indicators are right and the stock does fall, it can fall all the way down to $67.50 and those investors that wrote the puts will still earn the 15.6% return on margin. If the stock drops below the $67.50 strike price, 100 shares of the stock can be assigned to the writer of the puts for each option they sold. If this happens, the investor now owns the stock with an entry price of $66.25. The strike price is the purchase price, but investors received $1.25 for selling the puts.
The entire outlook from Tickeron appears below and personally I like the idea of getting paid to wait for a better entry point on Stoneco.
STNE's Indicator enters downward trend
The Aroon Indicator for STNE entered a downward trend on January 08, 2025. Tickeron's A.I.dvisor identified a pattern where the AroonDown red line was above 70 while the AroonUp green line was below 30 for three straight days. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options. A.I.dvisor looked at 255 similar instances where the Aroon Indicator formed such a pattern. In of the 255 cases the stock moved lower. This puts the odds of a downward move at .
Technical Analysis (Indicators)
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on January 08, 2025. You may want to consider selling the stock, shorting the stock, or exploring put options on STNE as a result. In of 82 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where STNE declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Bullish Trend Analysis
The RSI Indicator points to a transition from a downward trend to an upward trend -- in cases where STNE's RSI Oscillator exited the oversold zone, of 36 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. of 57 cases where STNE's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for STNE just turned positive on January 02, 2025. Looking at past instances where STNE's MACD turned positive, the stock continued to rise in of 52 cases over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where STNE advanced for three days, in of 301 cases, the price rose further within the following month. The odds of a continued upward trend are .
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating fairly steady price growth. STNE’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is slightly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (1.793) is normal, around the industry mean (31.428). P/E Ratio (26.076) is within average values for comparable stocks, (158.878). Projected Growth (PEG Ratio) (0.000) is also within normal values, averaging (2.763). Dividend Yield (0.000) settles around the average of (0.085) among similar stocks. P/S Ratio (2.365) is also within normal values, averaging (58.898).
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. STNE’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 87, placing this stock worse than average.
Notable companies
Industry description
Market Cap
High and low price notable news
Volume
Fundamental Analysis Ratings
The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows
General Information
a financial technology solutions provider
Industry PackagedSoftware