After finally opening for business as a publicly traded company, many investors now question if it’s a smart idea to consider Opendoor (NASDAQ:OPEN) stock.
With that question in mind, let’s take a look at what’s happening off and on the price chart of this recent special purpose acquisition company (SPAC) offering. I’ll then offer a risk-adjusted determination aligned with those findings.
For more than a few investors SPACs are inexorably linked with EV stocks. And for good reason. Fisker (NYSE:FSR), Blink Charging (NASDAQ:BLNK) and QuantumScape (NYSE:QS) are among some of today’s heavily traded vehicles. And there’s a ton more of other electric vehicle companies which have entered the market vis-à-vis a booming SPAC reverse merger process.
But outside an exciting EV market, OPEN is a SPAC stock that should be on investors’ radars. So, what is OPEN?
Opendoor is an online real estate upstart which uses an algo-driven platform to purchase homes from sellers. The company innovatively makes its money based on the spread after reselling the property. It’s a disruptive model that’s working. In 2019, the outfit brought in $4.7 billion in revenue. Moreover, that could be small potatoes with a market estimated at $1.6 trillion.
Enough said, right? Actually there’s more to the OPEN story that has caught the attention of Wall Street.
Opendoor is the result of a reverse merger with Social Capital Hedosophia II. Behind that curtain is Chamath Palihapitiya. Chamath is a well-regarded venture capitalist, engineer and early senior executive at Facebook (NASDAQ:FB) whose Social Capital partnerships are a working trust of philanthropists, technologists and capitalists utilizing venture capital as a force to create value and change on a global scale. Cool, right?
OPEN isn’t Chamath Palihapitiya’s first rodeo either.
Chamath has proven himself as a person that understands the big picture with a clear vision of market trends. And there’s certain proof of that already. His Social Capital Hedosophia was responsible for bringing Richard Branson’s wildly successful Virgin Galactic (NYSE:SPCE) public through the SPAC market. And at the time of OPEN’s initial merger announcement, Chamath promised Opendoor would be his next ten-bagger investment.
Opendoor Stock Weekly Price Chart
Source: Charts by TradingView
Everyone wants to own a ten-bagger, right? I can’t promise those type gains, but OPEN is setting up quite nicely as a weekly chart pullback entry.
With this week’s trading activity, shares have established a bullish engulfing pivot low. The price action completes a series of higher-highs and lows which forms an up channel. Additionally, as many growth stocks of Opendoor’s caliber make serious gains early in their lives as publicly traded companies, there’s a lot to like about OPEN as a lower-risk, high-reward buying opportunity.
After reviewing Opendoor’s options market, I’d favor the use of the March $32/$45 Bull Call Spread.
For about $2 this vertical offers an excellent risk-to-reward profile. Compared to buying shares, investors are risking roughly 7% of OPEN’s stock price no matter what happens through March expiration. Moreover, if things go as planned, this particular spread fits in nicely with the current trend and upside capture that could reach 550% and put investors well on their way to their own ten-bagger.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.