Welcome to Extreme Investor Network! Today, we want to discuss the recent volatility in the equity markets, particularly in the semiconductor sector.
After a significant bounce in equity markets, it is important to be prepared for additional volatility, especially in chip stocks. This volatility of volatility necessitates caution, but also presents unique opportunities for savvy investors.
We are currently expressing a bearish view on chip stocks, specifically the VanEck Semiconductor ETF (SMH). Despite a historic recovery in the last few weeks, we believe that there may be significant negative price action ahead for SMH.
In just 10 days, SMH went from an intraday low of around $220 to an intraday high of $247.34, showcasing an impressive pop in this high-beta, market-leading ETF. However, we believe now may be the time to consider taking profits if you are long on SMH, or hedging for a potential pullback.
With the recent drop in volatility, we have seen stocks like Nvidia (NVDA) bounce back strongly. NVDA, a 21% holding in SMH, has climbed back from $90 to nearly $125. However, we believe NVDA may need to pull back in order for our bearish view to materialize, especially with their upcoming second quarter earnings report on Aug. 28.
To capitalize on this potential downturn, we are looking to buy a put spread in SMH. This strategy involves buying the SMH $242.50 put and selling the SMH $232.50 put with an expiry of 8/30/24. This spread costs $3.25 per one lot spread, with the opportunity to profit $675 from each one lot spread if SMH moves lower.
As with any investment strategy, there are risks involved. If markets continue to climb or NVDA reports strong earnings, this trade may expire worthless. However, if our bearish view plays out, investors stand to benefit from this put spread strategy.
At Extreme Investor Network, we understand the importance of defining risk and staying ahead of market trends. Our unique insights and strategies can help you navigate the complex world of investing with confidence. Stay tuned for more expert analysis and recommendations to help you achieve your financial goals. Remember, before making any financial decisions, always consult with your own financial advisor.
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