Under ordinary circumstances, online marketplace The RealReal (REAL) seems an unusually risky wager. Focusing on the resale of authenticated luxury goods, the company’s Form 10-K claims that it’s revolutionizing the secondhand luxury resale market by providing an end-to-end service for consumers worldwide. While intriguing, that narrative also presents a challenge in the post-pandemic landscape.
Despite recent encouraging signs, it’s clear that inflation has been stickier than expected. In addition, interest rates are still sky high relative to what they were prior to the COVID-19 crisis. Beyond these known headwinds, it can’t be ignored that American households have struggled for years under a challenging financial paradigm. So, discretionary retail sentiment is under heavy skepticism.
Not surprisingly, REAL stock hasn’t exactly won investors over. Since the beginning of this year, shares tumbled nearly 20%. And while they’re up almost 18% in the past 52 weeks, in the trailing half-year period, the marketplace suffered an equity loss of more than 36%. Yesterday’s trading added to the misery, with REAL losing over 5%.
Nevertheless, the broader narrative isn’t all doom and gloom. In particular, the consumer sentiment index has been charting a series of higher lows since June 2022. Moreover, the jobs data continues to print impressive numbers. Statistically, more people have more money, which may bode well for REAL stock.
Best of all, the big dogs have caught wind of the opportunity and are putting their money where their mouth is.
Unusual Options Volume Implies a Line in the Sand for REAL Stock
On Monday, REAL stock ranked among the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume landed at 13,433 contracts against an open interest reading of 40,280. This tally represented an 891.37% lift against the trailing-month volume. What’s more, call volume landed at 13,236 contracts, outweighing puts measuring only 197.
On paper, this pairing yielded a put/call ratio of 0.01, which at face value favors the bulls. Looking at Barchart’s options flow screener, there was heavy volume recorded for the $1.50 (5,003 contracts) and $2.00 calls (7,784 contracts), both expiring on March 15 of this year. Data from Fintel confirms that these options were purchased, likely by major institutions.
If so, there’s good reason to believe that $1.50 could be the near-term bottom for REAL stock. Otherwise, the bulls would risk losing their premium, which for the $1.50 call clocked in at $149,298.
Still, there’s a good reason why some investors may be hesitant about engaging REAL stock. Statistically speaking, over the past five years, there have been 140 sessions (out of 257) where the opening price of the session was flat to lower than the prior day’s closing price. And when the opener goes flat or negative, there’s a 57.14% chance that the price action will end the day in the red.
Even worse, when REAL stock enjoys a positive opener, there’s a 53% chance that it will end the session lower regardless. Combined with broader concerns about how much more consumers can keep opening their wallets, REAL presents high risks. Still, another element exists that could help swing sentiment toward the northward direction.
Per Fintel, the short interest of REAL stock stands at 15.41% of its float. The short interest ratio is moderately elevated at 5.9 days to cover based on average trading volume. In other words, a not-insignificant number of traders are placing wagers against the online marketplace.
To initiate a short, one must borrow shares to immediately sell them in the hopes of picking them back up at a cheaper price. Naturally, the idea here is to return the contract amount of shares while pocketing the difference of a successful short.
However, an unsuccessful short could lead to traders pocketing contractual liabilities to return shares at a higher price. To avoid this terrible dilemma, traders cut their losses early. This dynamic in turn may create a positive feedback loop that could accelerate the target share price.
Use the Trader’s Cheat Sheet
One of the biggest tools that you can deploy for successful trading is what Barchart calls the trader’s cheat sheet. By providing key price levels at a glance, market participants can readily identify support and resistance levels. Personally, I enjoy focusing on pivots and standard deviations, leaving unchecked the other boxes for simplicity’s sake.
Conducting this exercise, we can see that the first point of support for REAL stock is $1.51. That’s just above the REAL Mar 15 ’24 1.50 Call that the major entities are gambling on. Further, the second point of resistance is around $1.45, indicating that we could be close to a bottom.
Therefore, anyone looking to scalp a quick profit may want to consider REAL stock. It’s risky but there’s also compelling data that endorses the wager.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
