Options Trader Sees Opportunity in China Crisis: Volatility Spotlight

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Semiconductors are having their worst month this decade, but one big options trader is calling a bottom in a key name.

Xilinx (XLNX) has been one of the industry’s top performers in the last year as investors looked for a boost from 5G networks. That same positive turned into a negative last week after President Trump banned sales to Chinese tech giant Huawei.

XLNX, already skidding when the news hit, kept dropping on Monday to its lowest level since January 24. And then about halfway through the morning, an options trader stepped in to call a bottom with the stock just below $100.

He or she sold more than 10,000 June 90 puts, initially for $1.50 but then in larger size down to $1.32. Overall volume shot past 10,000 contracts, dwarfing previous open interest of just 497 contracts.

Puts fix the price where a security can be sold. Owning them can make money to the downside, but traders can also sell them to earn income. In that case, they’re looking for a level not to be reached and profit from time decay. See our Knowledge Center.

Xilinx (XLNX) chart with $90 level and 200-day moving average shown.
Xilinx (XLNX) chart with $90 level and 200-day moving average shown.

Yesterday’s transaction was interesting because they sold the contracts with only a month before expiration. That’s when time decay works most quickly in their favor.

XLNX dipped as low of $97.68, but inched back to end the session down 3.56 percent to $101.03. The shares have retraced most of a 55 percent rally that occurred between late-December and late-April.

Chart watchers may also look for support around $90 because that’s where XLNX consolidated immediately before breaking out.

Overall options volume in the session was about twice the last month’s daily average.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.