Tough Times for Chips

by Ken Trester | September 27, 2012 8:27 am

The Philadelphia Semiconductor Index (SOX) has taken the lead for the worst-performing sector for September, down nearly 6% on the month and nearing seven-week lows. My scans indicate there’s more trouble ahead for the beleaguered sector. Consider my latest results for some of the names in the industry:

My analysis revealed an undervalued — and cheap — put option play in chip manufacturing equipment maker Lam Research (NASDAQ:LRCX[8]).

I recommend buying the LRCX Dec 30 Puts at $1 or lower, where they are currently trading. But be careful: Open interest and volume are light in this name, so using a limit order can help ensure that you don’t overpay.

LRCX is currently trading in the mid-$31 area, but my downside target is $30.20 before December expiration — though I look for this trade to resolve a lot sooner, probably in a matter of weeks. So, take profits in the trade if the stock dips down to my target or if the put options appreciate to $1.80.

To protect yourself and escape with a fair amount of capital if the market’s uptrend resumes, exit the trade if LRCX stock closes above $33.70, or if the put drops to 70 cents.

Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973.

Endnotes:
  1. AMAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMAT
  2. AVT: http://studio-5.financialcontent.com/investplace/quote?Symbol=AVT
  3. TXN: http://studio-5.financialcontent.com/investplace/quote?Symbol=TXN
  4. QLGC: http://studio-5.financialcontent.com/investplace/quote?Symbol=QLGC
  5. NVDA: http://studio-5.financialcontent.com/investplace/quote?Symbol=NVDA
  6. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  7. AMD: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMD
  8. LRCX: http://studio-5.financialcontent.com/investplace/quote?Symbol=LRCX

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