Bargain hunters have been perking up lately as the FAANG members got tossed out with the trash. With the market a sea of red this week, the following Baron Rothschild quote comes to mind. “The time to buy is when there’s blood in the streets.” The trick, I suppose, is knowing when the end of the blood is imminent — which is, admittedly, easier said than done.
Once-loved tech stocks are now loathed. But with the down gap, many have become steeply oversold and perhaps destined for a snap-back. With contrarians circling I want to offer up a few ideas for those brave enough to try their hand at the game of knife catching.
To provide ample safety and room for error, we’ll use high-probability bull put spreads. Here are three ways to play the FAANG stocks’ capitulation.
Apple (AAPL)
Weakening iPhone demand and lackluster forward guidance have created a toxic brew for Apple (NASDAQ:AAPL) shares. With the once magical fruit now bruised, shareholders are abandoning ship. At today’s lows ($175.51), the peak-to-trough losses in AAPL stock officially reached 25%.
What’s more impressive than the descent’s damage is its speed. When the world’s largest company loses a quarter of its value in six weeks, it says something about just how pessimistic traders have become.
With implied volatility rising back toward its highs for the year, put premiums are ripe for the selling. If you’re willing to bet on a bounce in AAPL over the weeks ahead, then sell the Dec $165/$160 bull put for 86 cents.
Amazon (AMZN)
The losses in Amazon (NASDAQ:AMZN) have exceeded those of AAPL. At this morning’s lows, the king of online retail has lost 31% of its value, with much of the drop coming in the past 10 trading sessions. Tanking $400 in two weeks is no small feat.
But with AMZN stock so oversold in the near term, buyers are swarming to buy the down open. The last two episodes of oversold conditions resulted in rousing rebounds for the stock, so I wouldn’t be surprised if this one plays out similarly.
Tack on the sky-high implied volatility (the IV Rank is 90%) and bull puts seem like an attractive way to play AMZN as well. Sell the Dec $1,290/$1,280 bull put for $1.50.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) rounds out today’s selection with a similar setup to its predecessors. With its overall losses up to 40% this morning, we’ve saved the most beaten-down of the three for last.
On the momentum front, NFLX stock could be carving out a slight RSI bullish divergence if today’s rebound attempt holds. It has already rebounded $20 from this morning’s lows returning to unchanged after a bloody open. If the gains stick the reversal candle could kick-off a multiday recovery.
With its implied volatility rank at 88%, we will once again use bull puts to position ourselves. Sell the Dec $230/$225 bull put for 85 cents.
As of this writing, Tyler Craig held bullish positions in AAPL. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
