The Nasdaq is notching new highs every day. It’s a push fueled by investors gobbling up growth-related names like semiconductor stocks. In fact, though the Nasdaq is arguably extended, semis are just now breaking out of a long-term trading range. And that makes them a tempting target for new buys.
I sifted through the dozens of components and discovered three top tickers to play if you want to join the party. There was no shortage of picks. The sector is full of healthy trends and bullish reversal patterns. You can honestly throw darts and nail something worth purchasing. Nonetheless, I narrowed down the list to the following three.
One provides a diversified bet. The second offers big momentum. And the third is just topping off a bottoming pattern.
- Market Vectors Semiconductor ETF (NYSEARCA:SMH)
- Advanced Micro Devices (NASDAQ:AMD)
- Qualcomm (NASDAQ:QCOM)
After briefly analyzing the price action, I’ll share a smart options trade you can use to capitalize.
Semiconductor Stocks: Semiconductor ETF (SMH)
Any time you want to game a particular theme or acquire exposure to an industry, consider using an exchange-traded fund (ETF). Its diversified nature insulates you from company-specific risk. There’s no chance that bad luck causes you to pick the one company in the sector that sours while everything else soars. When it comes to semiconductor stocks, the most popular ETF is SMH.
On Monday, the fund powered through the $258 resistance zone, signaling the next advance is upon us. The six-month range that preceded the breakout gave semis ample time to digest the substantial gains from 2020.
The Trade: Buy the August $260/$275 bull call vertical for $6.
The max loss is $6 and the max gain is $9. If SMH sits above $275 at expiration, the spread will payout a 150% return.
Advanced Micro Devices (AMD)
Advanced Micro Devices has treated momentum traders well over the years. It wasn’t long ago that AMD was hugging the single digits. Now, it’s nearly $100. This week’s awakening is reminiscent of its volatile ascent and is causing spectators everywhere to take an interest. Count me among them.
June 17 was the day that flipped the switch for AMD. Prices broke above the 200-day moving average on huge volume, and we’ve seen nothing but extremely bullish movement since. For the first time in a long time, all major moving averages are pointing higher giving the stock trend alignment across all time frames.
Accumulation days have continued to stack up and confirm institutions are snatching up shares.
The Trade: Buy the August $95/$100 bull call vertical for $1.70.
The max loss is $1.70 and the max gain is $3.30.
Semiconductor Stocks: Qualcomm (QCOM)
The final of our semiconductor stocks to consider is Qualcomm. It offers a different chart pattern than its predecessors with a double bottom. Because we’re getting in on the ground level, there’s plenty of upside if it returns to the peak from earlier this year. With Tuesday’s breakout over $140, QCOM stock officially ended a five-month reversal pattern. The turnabout is also now pulling the 20-day and 50-day moving averages higher.
To capitalize on what could be a nice comeback over the next few months, I like the higher profit potential of a vertical spread. We’ll use October options to provide time for the stock to make the necessary move.
The Trade: Buy the October $150/$160 bull call for $2.60.
The max loss is $2.60 and the max gain is $7.40.
On the date of publication, Tyler Craig held LONG positions in QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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