Today’s trade: iShares PHLX Semiconductor ETF (SOXX)
The set-up: The iShares PHLX Semiconductor ETF has been hot – it was up 1.9 percent Monday and is up nearly 60 percent over the last 12 months – but just like much of what is out there in these market conditions, it feels overpriced.
The play: After its two most recent dips, SOXX at-the-money call options have snapped back with gains well in excess of 10 percent. I’m expecting that to happen again, so I’m looking to buy two months’ worth of at-the-money call options on the next dip.
I’ll buy the options at $147.51, with a very tight stop-loss in case SOXX doesn’t follow up the dip-reversal trend. I’ll be very satisfied with a 10 percent gain here, taking profits by $155.
Davis Martin is the publisher of DailyProfitMachine.com. He trades SPY calls and swing trades stocks and stock options. While he has never traded SOXX before, he has regularly traded semiconductor ETFs via at-the-money call and put options (mostly call options of late. At the time this article was published on RagingBull.com, he was planning to buy SOXX as described in the article, on the next dip.