Overbought WWE Stock Sets Sights on Another Record High

WWE's 14-day RSI is above 90

Needham just raised its price target on World Wrestling Entertainment, Inc. (NYSE:WWE) to $70, the highest on the Street. This follows reports the company is about to close a $1 billion deal with Fox for its "Smackdown" franchise. As such, the stock is trading up 2.4% in pre-market trading, which would put it on pace for another record high. It's essentially already tripled in value over the past 12 months -- including a more than 48% so far in May -- closing yesterday at $57.86.

It's not surprising that such a rapid rise in price has WWE in overbought territory, but the stock is far into overbought territory. At yesterday's close, the security's 14-day Relative Strength Index (RSI) stood at 93.98, which is the highest it's been in at least 20 years. While this would suggest the equity is due for a short-term breather, other indicators suggest there's more fuel left in the tank.

For starters, World Wrestling Entertainment remains heavily shorted, pointing to a potential short squeeze. Plus, there's plenty of room for more bull notes to come through from the analyst community. Five of the 12 brokerage firms covering the shares have tepid "hold" ratings in place, and the average 12-month price targets sits down at $49.45.

Looking at recent options activity, calls were extremely popular in yesterday's trading, with more than 16,000 trading. For perspective, WWE's average daily call volume is just 494. The most popular contracts were the June 60 and 65 calls, where heavy spread activity looks to have taken place, while other traders were seemingly buying to open the June 55 call, betting on more upside in the near term. However, it's become expensive to speculate on the stock with short-term options, since its 30-day at-the-money implied volatility closed at a 52-week high of 50.7% yesterday.