Backtesting 11 Oversold Stocks With Bullish Options Sentiment

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 |  Includes: AUO, BAP, CSCO, ENTR, EXPE, IONS, KODK, MITI, MNI, MNKD, OWW
by: Kapitall

The following is a list of oversold stocks, as defined by the Relative Strength, or RSI(14), indicator. All of the stocks mentioned below have RSI(14) levels below 30, which usually signals oversold conditions.

Additionally, all of these stocks have a large number of open call option positions relative to put option positions, i.e. a low Put/Call ratio.

Considering the large number of call options relative to put options, some might say these names are set for a near-term rally. Do you agree?

To understand the significance of the RSI(14) indicator, we also backtested a simple trading strategy to see how these stocks have previously reacted to these trading levels. The strategy is discussed below. (You can access the complete backtested results by clicking here.)

Options data sourced from Schaeffer's, RSI(14), short float and performance data sourced from Finviz. Backtesting performed with StrategyDesk.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.

Backtested Strategy: Buy 100 shares of the stock when the RSI(14) indicator drops below 30, and sell when the RSI(14) indicator rises above 50. No trailing stops.

1. The McClatchy Company (NYSE:MNI): Newspapers Industry. Market cap of $363.63M. RSI(14) at 26.94. Call open interest at 4,442 contracts vs. put open interest at 1,045 contracts (Put/Call ratio at 0.24). Short float at 32.01%, which implies a short ratio of 19.23. The stock has lost -13.18% over the last year.

Backtested Results For MNI: Over the last 5 years, the RSI(14) alert was triggered 14 times. Trading the above-mentioned strategy resulted in 8 winners and 6 losers (57.14% success rate). The strategy returned -15.18%, higher than the buy and hold return of -92.76%.

2. Entropic Communications, Inc. (NASDAQ:ENTR): Semiconductor Industry. Market cap of $854.91M. RSI(14) at 29.63. Call open interest at 24,988 contracts vs. put open interest at 7,010 contracts (Put/Call ratio at 0.28). Short float at 28.08%, which implies a short ratio of 6.91. The stock has gained 175.27% over the last year.

Backtested Results For ENTR: Over the last 5 years, the RSI(14) alert was triggered 2 times. Trading the above-mentioned strategy resulted in 1 winner and 1 loser (50% success rate). The strategy returned -53.27%, lower than the buy and hold return of 31.25%.

3. AU Optronics Corp. (NYSE:AUO): Computer Peripherals Industry. Market cap of $8.04B. RSI(14) at 29.94. Call open interest at 5,494 contracts vs. put open interest at 1,710 contracts (Put/Call ratio at 0.31). Short float at 0.93%, which implies a short ratio of 2.98. The stock has lost -19.81% over the last year.

Backtested Results For AUO: Over the last 5 years, the RSI(14) alert was triggered 6 times. Trading the above-mentioned strategy resulted in 4 winners and 2 losers (66.67% success rate). The strategy returned -0.04%, higher than the buy and hold return of -29.5%.

4. Orbitz Worldwide, Inc. (NYSE:OWW): General Entertainment Industry. Market cap of $427.66M. RSI(14) at 25.74. Call open interest at 979 contracts vs. put open interest at 341 contracts (Put/Call ratio at 0.35). Short float at 1.89%, which implies a short ratio of 6.88. The stock has lost -38.8% over the last year.

Backtested Results For OWW: Over the last 5 years, the RSI(14) alert was triggered 7 times. Trading the above-mentioned strategy resulted in 6 winners and 1 loser (85.71% success rate). The strategy returned 66.72%, higher than the buy and hold return of -71.31%.

5. Isis Pharmaceuticals, Inc. (ISIS): Drug Manufacturer. Market cap of $869.25M. RSI(14) at 27.54. Call open interest at 3,612 contracts vs. put open interest at 1,337 contracts (Put/Call ratio at 0.37). Short float at 9.79%, which implies a short ratio of 15.54. The stock has lost -6.01% over the last year.

Backtested Results For ISIS: Over the last 5 years, the RSI(14) alert was triggered 9 times. Trading the above-mentioned strategy resulted in 8 winners and 1 loser (88.89% success rate). The strategy returned 67.56%, higher than the buy and hold return of 58.58%.

6. Micromet, Inc. (NASDAQ:MITI): Biotechnology Industry. Market cap of $485.19M. RSI(14) at 27.61. Call open interest at 1,472 contracts vs. put open interest at 645 contracts (Put/Call ratio at 0.44). Short float at 5.48%, which implies a short ratio of 7. The stock has lost -24.94% over the last year.

Backtested Results For MITI: Over the last 5 years, the RSI(14) alert was triggered 6 times. Trading the above-mentioned strategy resulted in 5 winners and 1 loser (83.33% success rate). The strategy returned 79.47%, higher than the buy and hold return of -33.74%.

7. Credicorp Ltd. (NYSE:BAP): Money Center Banks Industry. Market cap of $7.85B. RSI(14) at 29.41. Call open interest at 736 contracts vs. put open interest at 385 contracts (Put/Call ratio at 0.52). Short float at 0.6%, which implies a short ratio of 1.03. The stock has gained 29.53% over the last year.

Backtested Results For BAP: Over the last 5 years, the RSI(14) alert was triggered 5 times. Trading the above-mentioned strategy resulted in 2 winners and 3 losers (40% success rate). The strategy returned -17.46%, lower than the buy and hold return of 298.53%.

8. Eastman Kodak Co. (EK): Photographic Equipment & Supplies Industry. Market cap of $959.9M. RSI(14) at 26.24. Call open interest at 108,546 contracts vs. put open interest at 59,491 contracts (Put/Call ratio at 0.55). Short float at 17.06%, which implies a short ratio of 4.41. The stock has lost -41.38% over the last year.

Backtested Results For EK: Over the last 5 years, the RSI(14) alert was triggered 12 times. Trading the above-mentioned strategy resulted in 7 winners and 5 losers (58.33% success rate). The strategy returned 4.6%, higher than the buy and hold return of -85.41%.

9. Cisco Systems, Inc. (NASDAQ:CSCO): Networking & Communication Devices Industry. Market cap of $104.26B. RSI(14) at 27.9. Call open interest at 1,433,644 contracts vs. put open interest at 867,279 contracts (Put/Call ratio at 0.6). Short float at 0.71%, which implies a short ratio of 0.52. The stock has lost -21.63% over the last year.

Backtested Results For CSCO: Over the last 5 years, the RSI(14) alert was triggered 7 times. Trading the above-mentioned strategy resulted in 2 winners and 5 losers (28.57% success rate). The strategy returned 5.01%, higher than the buy and hold return of -0.05%.

10. MannKind Corp. (NASDAQ:MNKD): Biotechnology Industry. Market cap of $434.2M. RSI(14) at 26.35. Call open interest at 150,992 contracts vs. put open interest at 94,065 contracts (Put/Call ratio at 0.62). Short float at 25.13%, which implies a short ratio of 4.56. The stock has lost -64.53% over the last year.

Backtested Results For MNKD: Over the last 5 years, the RSI(14) alert was triggered 12 times. Trading the above-mentioned strategy resulted in 10 winners and 2 losers (83.33% success rate). The strategy returned 110.15%, higher than the buy and hold return of -75.92%.

11. Expedia Inc. (NASDAQ:EXPE): Lodging Industry. Market cap of $6.01B. RSI(14) at 29.14. Call open interest at 94,973 contracts vs. put open interest at 64,861 contracts (Put/Call ratio at 0.68). Short float at 9.01%, which implies a short ratio of 3.27. The stock has lost -1.32% over the last year.

Backtested Results For EXPE: Over the last 5 years, the RSI(14) alert was triggered 12 times. Trading the above-mentioned strategy resulted in 8 winners and 4 losers (66.67% success rate). The strategy returned 7.5%, higher than the buy and hold return of -16.08%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.