Semiconductor Stocks like Xilinx are Holding Above Support

Collect premium with a put write

Negotiations over the first phase of the trade war have continue this week. The first phase of the trade deal still seems stuck on discussions of U.S. tariff rollbacks and China’s commitment to agricultural purchases, but the two sides are still talking, which is positive.

The S&P 500 pushed to another all-time high yesterday, bouncing off the short-term support it established last week. For now, it seems like a carefully selected bullish trade would be a good addition to a portfolio.

The U.S. chipmaker Xilinx, Inc. (NASDAQ:XLNX) has started making higher lows, and a put write is an excellent way to collect some extra premium while investors are optimistic about U.S.-China trade.

The Huawei Exceptions

The ongoing trade war has been unkind to U.S. chipmakers, and when the Trump administration blacklisted the Chinese telecom giant Huawei, the situation only got worse for them.

As the first phase of the trade deal started developing, the White House said the deal wouldn’t address Huawei’s status. At the company’s post-earnings conference call in October, Xilinx Chief Executive Victor Peng said, ‘That would be the bigger thing than tariffs by far.”

The Trump administration took steps to alleviate the pressure on the semiconductor industry. While the Federal Communications Commission labeled Huawei a security threat, meaning federal funds won’t be spent on buying or maintaining Huawei products, the Commerce Department has agreed to let some companies do business with Huawei.

Those exceptions may make traders more inclined to jump back into semiconductor stocks.

Finding Support at $90

XLNX has fallen back to support in the $89-$90 range in the past few days. The stock established that support in October, and it has been gradually making higher lows. As you can see in the chart below, XLNX still has to contend with resistance in the $98-$99 range.

Daily Chart of Xilinx, Inc. (XLNX) — Chart Source: TradingView

I think it will take more concrete developments on the trade front for XLNX to break higher. The company topped expectations at its last earnings report, but its outlook for the next quarter was disappointing. The Huawei exceptions may provide enough optimism in the sector to push XLNX back up, but I don’t think it will be enough to push the stock above resistance.

Still, its support has held strong during the recent trade back-and-forth. I think a bullish trade with a far out-of-the-money strike makes sense.

Sell to open the XLNX Dec. 20th $80 put at about $0.35.

Note: Be sure you are opening the monthly XLNX options that expire on Friday, Dec. 20, 2019.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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