Micron Soars: Time to Boost SOXL?
$Micron Technology(MU)$ has accelerated its growth momentum in the past fiscal quarter, and its latest quarterly results blew past Wall Street expectations, highlighting the robust demand for high-bandwidth memory (HBM) amidst the AI boom.
On Wednesday, Micron unveiled its financial figures for fiscal Q4 2024, along with guidance for fiscal Q1 2025. This report was undoubtedly a shot in the arm for equity investors. Post-earnings, Micron's shares, which closed up nearly 1.9% on Thursday, soared over 14% in after-hours trading.
The report revealed that both revenue and earnings accelerated from the previous quarter, surpassing Wall Street's optimistic projections. Analysts had forecast a 91% revenue growth for Micron in Q4, but the company surpassed that, logging a stunning 93% growth.
AI's hunger for chips has once again exceeded Wall Street's appetite. For investors eager to join the ride but unsure where to start, consider diversifying into a basket of semiconductor ETFs using a bull put spread strategy.
The Bull Put Spread Strategy
The bull put spread involves selling a put option while simultaneously buying another put option with the same expiration date but a lower strike price on the same underlying asset. Since the premium received from selling the put option is higher than the premium paid for buying the lower strike put, investors typically end up with a net premium.
This strategy is useful when investors expect the market price to rise, but only to a limited extent, and want to avoid the consequences of a market downturn.
1.Advantages of the Bull Put Spread Strategy
- Low-Risk Income Generation: This strategy is ideal for investors looking to earn premium income with lower risk compared to simply selling puts.
- Buying Stocks at a Discount: The bull put spread is an effective way to purchase desired stocks below their current market price.
- Profit in Volatile Markets: The strategy can generate profits even when the market is choppy, as it limits downside risk while allowing for potential gains.
2.SOXL Bull Put Spread Example
The current price of $Direxion Daily Semiconductors Bull 3x Shares(SOXL)$ is $38.37. Assuming an investor believes SOXL will surge by 50% over the next month, they can embark on a two-step strategy:
Step 1: Sell a put option contract expiration date of October 25th with a strike price of $45, and receives a premium of $1050.
3.Profit and Loss
Net Premium Income: $1,050−$335 = $715
- If SOXL's stock price is above $45 at expiration: Both options expire worthless, and the trader keeps the entire net premium. Maximum Profit: $1,050−$335 = $715 (net premium income).
- If SOXL's stock price is below $35 at expiration: The loss from the bull put spread reaches its maximum. The sold $45 put option will be exercised at $45, while the purchased $35 put option will be exercised at $35.
Maximum loss: $1,000(spread loss) -$715 (net premium income)= $285.
This strategy thrives on SOXL's upward or flat trajectory, offering a max profit of $715; however, should SOXL plummet below $35, the max loss caps at $285.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
