Semiconductor stocks are on the move and traders are taking note. The newfound strength is buoying the broader tech sector, bringing profits and fortune to those still standing following April’s Apple Inc. (AAPL)-driven tech plunge.
Chief among the leading semi stocks is Qualcomm, Inc. (QCOM), which has kindly pulled back in recent days to provide a low-risk entry for would-be QCOM stock buyers.
The setup is straightforward. Last month’s breakout ushered QCOM stock back above all its major moving averages. Perhaps the most notable bullish victory is Qualcomm’s remounting of the oft-watched 200-day moving average. It has been some 18 months since the stock has been above the 200-day.
A mild bout of profit taking has lowered QCOM stock over the past four days creating a much more attractive entry for those loathe to chase. Wednesday’s trading session treated QCOM shareholders to a downgap that filled in short order.
The aggressive nature of the gap fill suggests dip buyers are still alive and well.
Should the dip keep dipping, watch for support to materialize in the $53 zone. This threshold acted as resistance on the way up and should provide a floor for the stock going forward.
Grab QCOM Call Spreads on the Cheap
The theme of cheap options continues with today’s Qualcomm play. The implied volatility rank sits at a lowly 12%. Said another way, the price of one-month QCOM stock options sits at the 12th percentile of its one-year range.
Inexpensive options translate into less risk for long option trades.
If you think the good times keep rolling for semiconductors, consider buying the Aug $55/$60 call spread for $1.72. The vertical spread consists of buying to open the Aug $55 call while selling to open the Aug $60 call. The net debit of $1.76 represents the max risk and will be lost if QCOM sits below $55 at expiration.
The max reward is limited to the distance between strikes minus the net debit, or $3.28, and will be captured if the stock can vault above $60 by expiration. Using August options gives us a couple of months — one of which includes an earnings announcement — for QCOM to make the necessary journey to $60.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
