Trading depends SO much on timing.
You may have a great trade idea, but if the timing is off then then you have to move on …
But that doesn’t mean you can’t circle back
My last trade idea in Advanced Micro Devices (Ticker: AMD) didn’t pan out because confirmation in the form of the hammer candlestick — indicating a reversal of the stock from a downtrend — never appeared.
The positive, of course, is that it didn’t cost me anything.
This is why that confirmation is so important.
Now, though, I think AMD stock will be moving higher and I have a great option trade idea to take advantage of that move.
There are two things I am looking at here:
- I like the chart — it looks bullish
- I really like the volatilities: implied volatility and historical volatility
One of my favorite strategies is to compare the implied volatility of the options to the historical/realized (already happened) volatility of a stock.
In AMD, there is a wide discrepancy between these two..
The implied volatility of the options is 45.75, while the historical volatility of the stock for 20 days is 53.69.
It’s even higher for the 10-day at 63.27.
I like this setup as it makes for less expensive option prices.
The fact that the 10-day is so much higher than the 20-day vol tells us the stock has been moving much more recently, but the IV of the options is still cheap.
Let’s take advantage of that price difference …
Looking at the options chain, I like the Apr16 expiration, which is the monthly expiration. It has much more volume trading than the weekly expirations, which also gives us tighter markets. That provides easier entry for our spread and better pricing.
With the stock closing at $81.05 on Friday, I like buying the just out-of-the-money 82.50 calls and selling the 97.50 calls.
This is a fifteen point spread for around $3.00. Sounds a bit pricey but we do have 36 days until expiration.
The 82.50 calls have an IV of 43.08 while the 97.50 calls IV is much higher at 48.72, that makes for a good vertical spread!
I will take my losses if this spread trades below $1.80. I think it has great upside potential and I will begin to sell above $5.00. .
Another Chip Idea
For a long term trade, I like Taiwan Semiconductor Manufacturing Company (Ticker: TSM).
They hold 56% of the market share of the semiconductor foundries. The next competitor behind them is Samsung Electronics with 18%.
With this semiconductor shortage crisis raging, I see TSM as a long play …
I’m a buyer of the Oct15 120 calls around $12.50. To finance that purchase I’m selling the Apr16 130 calls and continuing to roll those into May, Jun, etc.
PENN is Trading $130!
Last Wednesday I wrote about a trade idea in PENN National Gaming (Ticker: PENN). The stock was trading $115 and I recommended the Mar19 118/128 call spread paying $2.80.
PENN opened the next day up almost three bucks, so in order to get into that spread you had to pay up to $3.20 …
I hope you did, because the spread went out on Friday at $6.00-$7.00! That is a 100% gain!!
I Am Still Liking My AMC Spread
On March 10, I also mentioned a call spread in AMC Entertainment (Ticker: AMC). I bought the Mar19 10/15 call spread and paid $1.10.
I survived the earnings report, the stock closed at $11.16 on Friday and the spread went out at $1.30-$1.37. I am keeping my position and I think AMC is going to trade higher near $15.00.
Have a great week!
Thanks for Reading … See You Next Tuesday!