Microchip Call Options Just Tripled in 8 Days

It took less than two weeks for traders to win big on MCHP calls

by Emma Duncan

Published on Jul 25, 2019 at 12:23 PM

Subscribers to Schaeffer's Expiration Week Countdown options recommendation service just tripled their investment on the Microchip Technology Inc. (NASDAQ:MCHP) weekly 7/26 90-strike call trade. Below, we'll explain the factors that went into this short-term options trade hitting its expected target, leaving speculators with a big win.

We initially recommended the call to subscribers on Sunday, July 14. At the time, there had been a bit of a chop to the daily action in July, but MCHP shares had quietly achieved additional credibility on the technical front for the month, as they successfully retested what was shaping up to be solid support at the 80-day moving average.

At the time of the recommendation, MCHP was trading in excess of 50% above its October low and also within 10% of its all-time high. MCHP's 20-day Relative Momentum Index (RMI) flashed a "cover shorts" signal in early June, and appeared to be headed to a "buy" signal as it inched toward 70 -- an event that was likely to be matched by further upside in the shares.

MCHP had also displayed a strong tendency toward condensing big price movement into short time frames, with little time wasted in chops or sideways action. This made the stock a perfect candidate for our short-term trading service, as we targeted a challenge of the May all-time highs north of $100.

However, we warned that July volume for MCHP had thus far been light, and with short interest exceeding 12 days to cover, a pick-up in volume would become a necessary condition for any MCHP rally to persevere to the century mark -- as short selling activity was also likely to quicken in response.

The stock needed to reach an 8% rally to $99 over its two-week life span to achieve our targeted 200% profit. MCHP was choppy for the first week or so of the trade, but caught a major momentum boost this week from earnings-related strength in chip stocks.

The sector-wide rally in the semiconductor sector delivered just the volume boost our trade needed. After a 2% opening bull gap on Wednesday, July 24, daily share volume on Microchip stock hit a new month-to-date high north of 4 million, which likely sparked some short-covering. The stock hit an intraday two-month peak of $100.06, and our recommended weekly 7/26 MCHP 90-strike call achieved its 200% profit, tripling in value for subscribers after less than two weeks.

Daily MCHP with 80MA Entry Exit Dates


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