Trade Alert: Supermicro

Out of the bearish half of Friday's trade on SMCI; plus, a top names trade.

Flipping From Neutral To Bullish

In a post on Friday (Trade Alert: Binary Outcomes), we opened a pair of trades structured to enable us to profit whether shares of Super Micro Computer (SMCI 3.49%↑) spiked or plummeted this week, based on the impact of two expected catalysts.

One of those catalysts was whether it would avoid delisting today. That catalyst hit after hours on Friday, with the news that the company was submitting a plan to avoid delisting.

In light of today’s follow through in that price action, I have closed the bearish part of our pair of options trades from Friday, the put spread, for $0.17.

The stock is Super Micro Computer (SMCI 3.49%↑), and there are two parts to this trade:

1. Open a put spread expiring on November 22nd, buying the $15 strike puts and selling the $14 strike puts for a net debit of $0.33.

2. Open a call spread expiring on November 22nd, buying the $19.50 strike calls and selling the $20.50 strike calls for a net debit of $0.31.

The max profit is 56%, and that occurs with the stock above $20.50 or below $14 next Friday. The max loss is $100%, and that would occur if the stock doesn’t move at all between now and next Friday.

Initially, the max upside for this pair of trades was 56%, assuming we would take a 100% loss on one leg. But since we only took a $0.17 loss on the put leg, our total outlay drops from $0.64 per contract ($0.33 + $0.31) to $0.47 per contract [($0.33 - $0.17) + $0.31] = $0.47. Since our max return on the call spread remains $1, and our total outlay is now $0.47, our max upside now is 113%: [($1-$0.47) / $0.47] = ~$1.13.

In addition to closing the put spread, I also bought a few more underlying shares of SMCI at $21.86 today.

Buying A New Top Names Stock

As regular readers know, our core strategy is to buy equal dollar amounts of the Portfolio Armor web app’s top ten names, put trailing stops of 10%-20% on them, and replace them with names from the current week’s top ten when we get stopped out of a position. As of last Thursday, I had gotten stopped out of two of my top names holdings, so on Friday, I bought two new ones from Thursday night’s top ten list.

On Friday, I got stopped out of another top name, so I bought shares of a stock that appeared in Friday night’s top ten today. You can read about it after the market risk reminder below.

If You Are Concerned About Market Risk

As a reminder, you can download our iPhone hedging app by clicking on the QR code below or aiming your iPhone camera at it.

Today’s Top Names Purchase