Welcome to Extreme Investor Network, where we provide expert insights and unique information on all things investing. As September rolls in, we are faced with the historical trend of significant market corrections during this month. In fact, in four of the past five years, the S & P 500 has experienced pullbacks ranging from 4% to 5% during September.
With major earnings reports behind us and no significant catalysts driving the market, now is the time to consider strategic investment moves. One potential play to consider is taking a bearish stance on the semiconductor sector using the VanEck Semiconductor ETF (SMH) as a proxy for this trade.
Analyzing the 6-month daily chart of SMH, we can see that the ETF participated in the recovery rally in August. However, it has recently faced rejection at a resistance level near $250 and is now forming lower highs and lower lows, indicating fading momentum from the relief rally.
To capitalize on this bearish outlook, a bear call spread strategy can be employed. This involves selling a $247.50 call option, near the resistance level of $250, and purchasing a $252.50 call option to protect against potential upside risk. The options chain for SMH shows a 62% probability that the stock will remain below $247.5 at expiration, presenting a favorable chance for this trade to succeed.
This trade setup generates a premium of $200, while the potential loss is limited to $300. If SMH stays below $247.5 by the expiration date, this trade delivers a 66% ROI on the capital at risk.
As always, it is important to conduct thorough research and consider your own financial circumstances before making any investment decisions. Stay tuned to Extreme Investor Network for more expert insights and unique investment strategies to help you navigate the ever-changing market landscape.
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