E-commerce stocks have roared higher off the March lows.
Wayfair, Stitch Fix, Etsy and Chewy have rallied triple digits since the market trough four months ago. Overstock, the biggest mover, has skyrocketed 2,058% since its own bottom. These stocks have been hot commodities as the stay-at-home trade benefited from pandemic-related lockdowns and quarantines.
Danielle Shay, director of options at Simpler Trading, said Overstock and its high-flying e-commerce peers have more upside.
"The hype is exactly what makes them great, especially for short-term momentum traders like myself," Shay told CNBC's "Trading Nation" on Monday. "My favorite part about them is that they have high short interest, and they're right up near the highs where those short sellers are going to have to cover."
Stitch Fix has the highest short interest at 43% of its float. Wayfair and Chewy have the next highest at 26% and 21%, respectively.
"The higher these things go, the more likely the short sellers are to cover," said Shay.
To take advantage of a short squeeze, Shay opts to buy Delta 70 call options with expiration 30 days out. Delta indicates how much an option mirrors the underlying security's moves. With Delta 70, if a stock rises by $1, the call will increase by 70 cents.
"For moves like this, when you have tickers that have large percentage gains, those are the best tickers to trade in the options market. There's a lot of premium that you can sell whenever they revert back to the mean," said Shay.
Mark Newton, founder of Newton Advisors, isn't betting against any of these soaring e-commerce companies, given their moves. There is one name, though, he says could be vulnerable to a pullback.
"Stitch Fix ... I do not like as well as the others. When you look at it technically, it has gotten right up to prior highs that were hit both earlier this year and also going back since last June and so after a run of about $11 up to $30, this is a pretty serious level for the stock," Newton said during the same "Trading Nation" segment.
Stitch Fix has rallied 138% off its March lows. However, it is just 1% higher for the year.
"I do think technically it's not nearly as attractive as maybe some of the others in the group," said Newton. "The lesson is that being overbought does not constitute sell. But in this case, Stitch Fix just is not the same quality and caliber stock as some of the others and just not as good of a stock to own technically."
Disclosure: Shay holds Chewy and Etsy.
