A Bullish Spin on the State of Semis

Published on
October 2nd, 2019
Duration
15 minutes

A Bullish Spin on the State of Semis

Technical Trader ·
Featuring Brian Shannon

Published on: October 2nd, 2019 • Duration: 15 minutes

Brian Shannon, CMT, founder of AlphaTrends.net, breaks down the recent price boom in the semiconductor sector. Shannon examines the sector through the lens of the $SMH, drills down on the top four components, and reveals his favorite from the bunch - $NVDA. Filmed on October 1, 2019 in Denver.

Comments

Transcript

  • MT
    Mike T.
    3 October 2019 @ 08:50
    no need to look at a charts, no need for fundamentals, no need for a thesis on semis, no need for a directional play to make money. Why? How? It all comes down to being able to identify high probability opportunities if/when we are able to trust the mathmatics of option pricing. 1./ Implied Volatility on SMH has spiked higher to >31% a 'relatively' extreme levels for an ETF over last two days. 2./ SMH options highly liquid $0.04 cent wide spreads 3./ Excellent Open Interest 4./ Expected Move for November Monthly Cycle +/- $9.03 5./ $1 wide strikes plus the above makes it a easy to adjust (for more $ credits) as the underlying stock price moves Non Directional at entry, Mathmatically 85 % Probability Trade if using a profit target of 50%, un-defined risk position. sell 106 Put Nov 15 Monthly sell 127 Call Nov 15 Monthly Credit received per 1 lot = $2.62 $7.358 daily decay i.e. time decay will work in favour of this position. This is a 'time decay' and 'volatility contraction' play trade Profit Target 50% of credit received i.e. buy back to close at $1.31 How do I know we're going to see a Volatility contraction? I don't know! However, we can play the odds knowing when we see a sharp jump higher in VIX, when it happens, 'statistically' 85% of the time it lasts 4-7 days. This information sent purely fyi, to illustrate it is possible to quickly find 'opportunities' without resorting to technical analysis, fundamental research, opinion of others, taking a long or short direction position
    • DP
      David P.
      3 October 2019 @ 17:05
      Great summary of a trade I think represents very good risk / reward. Well done. I love the idea...I'm more inclined to put this type of trade however late next week / Monday of OpEx week...But really well done..
    • MT
      Mike T.
      4 October 2019 @ 08:36
      David P. when you say "... more inclined to place this type of trade late next week/Monday of Op Ex [piry] week..." makes me worry a bit. The above trade is in the November 15th Monthly cycle, which yesterday would have meant 43 days to expiry, ( 45 dte being the theoretical optimal entry day as at 45 days the time decay starts to accelerate in favour of a short premium position. The next vitally important point to appreciate, a short premium position is 'most at risk' (aka Gamma risk) as expiry date approaches, with this in mind as a matter of a routine/mechanical process at 21 DTE if premiums in an establilshed position are still elevated (high IV Rank) always roll out to the next Monthly cycle. Lastly putting on a trade is the easy bit, however with short premium, undefined risk positions like the above, it is essential to be fully knowledeable of all the different strategies to 'defend' a position if it starts to go wrong. The idea of posting the above was purely to show how high probabilities trading opportunities can be found in a few seconds just by looking at option price movements upon a volatility spike higher. Please do not simply copy, you must be fully competent with all possible management techniques e.g. roll up, roll down, roll out, know what the management moves are in advance of placing a trade such as this. Lastly when it comes to 'management' of short premium option positions, a great many brokers make it really difficult by far the best one for Options & Futures management is Tastyworks. Other than holding a trading account, neither I or any member of my family or friends have any personal relationships with Tastyworks and its employees
    • JS
      Jack S.
      13 October 2019 @ 01:27
      Mike, how do you know all this? Super interesting way of looking at things..
  • jg
    john g.
    2 October 2019 @ 23:05
    Apparently this is from the "technical trader" series, but the video description about the recent price boom is misleading. I was hoping for some information about the price companies can fetch for chips.
  • OC
    Otto C.
    2 October 2019 @ 17:00
    SMH was rejected just near all time highs so I would short it. All semi's charts look ugly, they rally without momentum. To me, the SMH is a great short.
  • KF
    Ken F.
    2 October 2019 @ 13:30
    I’m guessing he has no looked at Semi revenue falling off a cliff or inventory builds. Fundamentals don’t matter right?
    • BS
      Brian S. | Contributor
      2 October 2019 @ 16:51
      correct, I have not looked. This segment is called "technical trader" no fundamentals were consulted. For the timeframe discussed, fundamentals do not matter. If the trade triggers, I go long. If it goes down, I am stopped out with a small loss. If it goes up, I scale out into strength and raise stops.
  • dp
    david p.
    2 October 2019 @ 12:51
    You won't see the canyon in the road ahead looking in the rearview mirror
  • Nv
    Nick v.
    2 October 2019 @ 11:43
    Technical trades in the opposite direction of the fundamentals are always intriguing. Anchored VWAP is an interesting concept. Good job Brian
  • RA
    Ralph A.
    2 October 2019 @ 11:31
    This guy is trying to pick up pennies in front of a steam roller. #LTCM
    • BS
      Brian S. | Contributor
      2 October 2019 @ 16:54
      I am a swing trader. My timeframe for losers is generally a day or two and winners are typically held 3-10 days. Ideally longer if the market allows. At this stage of the trend in SMH, it is likely picking up what LTCM called "Nickels" not "pennies" in front of a bulldozer. Is it difficult to add value in a comment?
    • PU
      Peter U.
      2 October 2019 @ 17:06
      I have followed Brian's work for some time (at least 5 + years). He is a very good trader.
    • BS
      Brian S. | Contributor
      7 October 2019 @ 16:47
      hey Ralph.. you posted your comment at 11:31 on 10/2 NVDA was 170.80, from there it dropped 67 "pennies" to make a low of the move. From that low, the stock has rallied to a high of 188.34 in three market days, that is 17 DOLLARS and 54 cents higher, just under 10%. I will pick those up from closed minded individuals everyday! LoLTCM