To The Moon

Introduction:

The recent plunge in $Sea Ltd(SE)$ stock price has caught the attention of investors, including myself. As someone who closely tracks market trends, I believe that the recent downturn in SE's stock presents an intriguing opportunity worth exploring. In this post, I will delve into the factors driving SE's decline, discuss my analysis of the situation, and share my strategy of using cash covered put options to potentially benefit from this market scenario.

Analyzing Sea's Recent Performance:

On August 15, 2023, SE's stock price experienced a dramatic 28.68% drop following an earnings report that left investors disappointed. Throughout the week, the stock continued to slide, ultimately losing about 32% of its value. This swift decline, coupled with downgrades from various analysts, undoubtedly raises questions about the company's prospects.

Drawing Parallels and Examining Broader Market Trends:

Interestingly, I can't help but notice the similarity between SE's current stock price of 38 and its position during the onset of the COVID-19 sell-off in March 2020. This historical parallel raises important questions about whether SE is facing company-specific challenges or if its performance is indicative of broader market uncertainties.

Given the ongoing market turmoil, I share the sentiment that the downtrend in SE's stock might persist. I've taken note of the Tom Demark perfect sell reversal on the weekly chart for the $S&P 500(.SPX)$ , which suggests that we might witness a continued market sell-off until the critical support level around 4200 for the SPX is thoroughly tested.

SPX weekly chart

Recognizing Oversold Indicators:

However, amid the prevailing bearish sentiment, there are signs that SE's stock might be oversold. The Relative Strength Index (RSI), a tool I rely on for gauging market momentum, shows that the 14-day RSI for SE is at an extreme 18.7, indicating oversold conditions. Similarly, the weekly RSI stands at 31.2, suggesting a relatively oversold state.

SE Day chart

SE Weekly chart

Unpacking Cash Covered Put Options:

Taking these indicators into account, I've been considering a strategic move—leveraging cash covered put options. This entails selling put options while having enough cash on hand to cover the purchase of the underlying stock if the options are exercised.

I've been eyeing a put option with a strike price of 30 that's set to expire on September 29, 2023. As of the last trading day, this put option had a bid price of 0.25. For me to acquire the stocks, SE's price would need to drop an additional 20%. Given my inclination for a long-term investment, this aligns well with my strategy of acquiring quality assets at discounted prices. After which, I will sell covered calls to recuperate some interest if I am lucky enough to be assigned.

My Long-Term Perspective:

My approach is rooted in a belief in SE's long-term potential. Like many other Singaporeans, I've come to rely on Shopee (under SEA) and Lazada, as my go-to online shopping platforms. Although in recent months, I've noticed that Lazada offers competitive prices due to vouchers and cash rebates. However, I am still confidence in the company's future prospects as Shopee under SE is here to stay. Moreover, the SEA’s venture into digital banking should provide further synergies for its gaming and ecommerce sectors.

Conclusion:

In conclusion, I like to invite readers to join me in contemplating Sea's trajectory. While the stock market remains unpredictable, my perspective emphasizes the potential benefits of employing a strategic approach like cash covered put options. As the story of Sea continues to evolve, I remain hopeful that this strategy will serve as a prudent move for those who share my optimism about the company's sustained success.

@CaptainTiger

@MillionaireTiger

@TigerStars

@Daily_Discussion