The Sky Is the Limit with Skyworks Solutions, Inc.

Accusing the U.S. of “launching the largest trade war in economic history to date,” Beijing has implemented retaliatory tariffs on 545 items worth $34B in response to the comparable U.S. duties that were enacted at midnight. Another $16B in tariffs are expected to go into effect in two weeks, and President Trump has warned of additional levies on $500B in Chinese goods.

U.S. employers likely maintained a rapid pace of hiring in June, with nonfarm payrolls increasing by 200,000, reinforcing expectations of strong economic growth in Q2 and allowing the Fed to continue hiking interest rates. Data from the Labor Department today could also show the unemployment rate ticking down for the third straight month to 3.7%, pushing the jobless reading to the lowest level since December 1969.

Let’s consider Skyworks Solutions, Inc. (ticker: SWKS):

The VantagePoint platform recently indicated upside momentum.

Using the predictive indicators embedded within the VantagePoint platform and its predictive AI technology, we will point out three significant things. We have a bullish crossover indicated by the blue predictive indicator line crossing above the black simple moving average between 7/3/18 and 7/5/18.  We can combine that with the VantagePoint propriety neural index indicator moving from the RED to the GREEN position back on that same day.  This indicator measures strength and weakness for a 48-hour period, in this case strength.  The move to the GREEN position further makes the case for a potential bullish scenario. We also have the predicted high and low above yesterday’s actual high and low indicating further strength.  I want to play the VP bullish indication.

Strategy Discussion

If one was strictly a stock trader, buying SWKS in the $99.80 area could be prudent.  You are anticipating a move to the upside.  As a protective measure, it is always good practice to place a sell-stop order.  In this case, placing that order in the $98.50 area will mitigate potential losses.

For active traders with a shorter investment time horizon, you can consider a setup utilizing options. Given the market conditions outlined above, taking an active, premium debit approach may be the best path to success.

Because of the reasons given above, the purchase of a debit call spread may be one way to approach this situation.  The first thing that you want to do is calculate your target price.  In order to perform this calculation, you need three pieces of information:  current price, expiration date and the implied volatility for that expiration date.  For SWKS this calculation yields a target strike of ~$104.  You may want to consider the SWKS July 20th regular expiration 102/104 call spread, buying it for $0.55.  The most you lose is the premium paid and the most you can gain is the width of the spread less any premium paid.  Max risk = $0.55 and max reward = $1.45.  This means that you are getting odds of 2.64:1.

Given the trading and market environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

Position Update

Please recall on Monday, we discussed NVDA.  We highlighted a lack of downward momentum and felt that we could use this coupled with recent support to play a put spread from the credit side.  In this case, we would profit is the position went down a little, stayed steady or rallied.  Specifically, we identified the NVDA July 13th weekly expiration 232.5/235 put spread, selling it for $0.85.  The most you could profit is the credit received and the most you risked is the width of the spread less any premium collected.  Max reward = $0.85 and max risk = $1.65.  This means that you were laying odds of 1.94:1.

Here’s today’s chart:

You can see that NVDA indeed held steady to working a little higher.  We decided to buy in our put spread for $0.25.  Since we had $1.65 of capital at risk and took $0.60 of profit, our ROI on this close is 36.4%.