Profit From the Fight Over Cypress Semiconductor Corporation (CY) Stock

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We now live in a highly technical world and it’s getting more dependent on technology at an exponential rate. Cypress Semiconductor Corporation (NASDAQ:CY) is a supplier to the back bones that makes this transition happen. With the advent of self-driving cars, the cloud and whatever other trends the future holds, I believe that there is room for it and all its competitors to thrive in this digital age.

CY stock is definitely not cheap, but that goes for the rest of the sector. Analyst expectations are spread across three ratings, so I see no unusual risk of surprise downgrades.

Cypress stock is now 40% higher than a year ago. But it has had its ups and downs. But for the past three months, CY managed to hold the $13 as support. So for the near term, this is the pivot I watch.


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Technically, the bears could argue that CY has been setting lower highs and bumping atop a floorboard. If the board breaks then price could overshoot 7% lower. The bulls have so far held the support level solid.

If they continue to do so, it’s likely that they can use it as a base to remount another rally toward $14 or higher.

That said, I don’t want to risk $13.4 and hope that we get the rally in CY stock … instead, I want to generate income from selling downside risk. To do that, I need to find levels where price is not likely to go.

If the $13 pivot fails, the next level of interest would be $12.30, which had served as pivot prior to January of this year and as far back as five years ago. So I can safely say that the $12/$13 zone is important to both sides and neither bulls nor bears are likely to let it go without a fight. This creates a stalemate in CY, which is perfect for selling premium.

My thesis today is that I bet that CY will be able to hold the aforementioned pivot level. And if not, then I am willing to own the shares at much lower than current levels. Think of it as getting paid for an opportunity to buy CY shares at a heavy discount off today’s price.

CY Stock Options

The Bet: Sell the CY Dec $11 put and collect 75 cents to open. Here I have a 75% theoretical chance of success. But if price falls below my strike, I will own the shares and suffer losses below $10.25. While the odds are near a coin flip, with a 17% price buffer I am confident that I can manage my risk against short-term price gyrations.

Not everyone is willing or able to sell naked puts. So for those I could use spreads instead.

The Alternate: Sell the CY Dec $11/$10 bull put spread. This has the same chances of success, but with limited risk. Yet, the spread can still yield a respectable 30%. Compare this with buying the shares and with no room for error hope that they rally 30% just to match the performance of the spread.

Selling options is risky business, so I never risk more than I am willing to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/profit-from-the-fight-over-cypress-semiconductor-corporation-cy-stock/.

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