The tech boom was nice while it lasted. And there’s no denying it lasted far longer than anyone could have hoped, particularly in the wake of a global pandemic. But as is the case with all melt-ups, gravity always has the last word. And now, we’re sifting through the rubble to identify which tech stocks are the best to buy.
As I write this Friday morning, The Nasdaq Composite is down another 3%, bringing its peak-to-trough drawdown to 8.2%. We’ve officially breached the 20-day moving average, and will likely see the 50-day before all is said and done. In case it wasn’t obvious, this dip is different than every other one seen since March. And because of its severity, I doubt we see as quick of a resumption in the overall uptrend.
Nonetheless, let’s look at this opportunistically. It’s giving you the chance to finally acquire some of the biggest winners on the planet at steep discounts. That said, I’ve scoured the tech wreck and found three pullbacks worth pouncing on.
While it may take another few days of selling before the pivot low is found, the time to prepare is now. Thus, let’s take a closer look at each chart and identify which options trades to play.
Tech Stocks to Buy: Apple (AAPL)
As is often the case following a huge bout of outperformance, the biggest winners are getting hit the hardest this week. And nowhere is that more apparent than with Apple. It’s run-up ahead of this week’s stock split was almost as insane as the otherwordly ascent in Tesla (NASDAQ:TSLA). But bulls are paying for their hubris ahead of the weekend.
With Friday morning’s bashing, AAPL stock is now 12% off the highs. The speed of the descent has to be catching novice traders by surprise. Short-term support zones are melting in the face of the liquidation — and until the panic subsides, no floors are safe.
That said, we’re getting to a point where it’s mighty tempting to start dipping toes into the water. I would wait for some type of confirmation though. Wait for a break of intraday resistance or a push above a previous day’s high. The implied volatility rank is ramping to the 55th percentile, officially inflating the pay-day of traders willing to step up and sell options.
The Trade: Sell the Oct. $90/$85 bull put spread.
Currently, it trades for 50 cents, but the premium will expand if Apple falls further.
If you looked on from afar, jealous of Zoom shareholders for their good fortune following Tuesday’s epic up-gap, then look alive. You’re about to get your chance to grab shares at pre-earnings prices. The red-hot tech stock has almost filled its gap.
ZM stock is already back to $350, and the gap fill becomes official at $325. You have to believe buyers are going to play some defense as we move into the low $300s. Given the earnings growth and bubbly sentiment surrounding Zoom, it has to be one of the top stocks to buy into this bloodbath.
Like Apple, Implied volatility is sky-high for ZM. It sits at the 67th percentile. Bull puts are my go-to play here. I’d wait for confirmation that the pullback is ending, though.
The Trade: Sell the Oct. $250/$240 bull put spread for around $1.60.
Advanced Micro Devices (AMD)
Advanced Micro Devices rounds out our trio of tech stocks to buy. It’s the newly-crowned king of semiconductors, and has nearly tripled since March. At least, before this week’s massacre.
Now, AMD stock is down another 2.5% thus far on Friday, bringing its correction to 11% so far. The 50-day moving average near $71 is the next downside target.
During liquidation events like this, company fundamentals go by the wayside. The entire tech complex is moving as one right now, so AMD’s chart will echo the confirmation signs of Apple and Zoom when they finally find bottoms.
Like its predecessors, AMD options are now expensive. Bull puts are the way to go.
The Trade: Sell the Oct. $60/65 bull put spread for around 80 cents.
On the date of publication, Tyler Craig held a long position in AMD and AAPL.
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