Xilinx (NASDAQ:XLNX) designs, develops and markets complete programmable logic solutions, including advanced integrated circuits, software design tools, predefined system functions delivered as intellectual property cores, design services, customer training, field engineering and technical support. The company's products are designed to provide integration and quick time-to-market for electronic equipment manufacturers in the communications, storage, server, consumer, industrial and other markets.
This position is based primarily on the outlook for the semiconductor segment and the technical condition of the underlying issue. Regarding the chip industry, sales growth is slowing with worldwide sales expected to be flat this year. We'll find out how "slow" when the company reports earnings later this month, however the range-bound character of XLNX suggests a significant catalyst will be needed to change the lateral trend. In addition, substantial overhead supply exists near the sold (call) strike at $32.50 and we believe the probability of a move through that resistance area is relatively small in the coming month.
The current credit for this position is only $0.20, but traders may be able to improve that price if the issue moves higher in the near-term, or through the use of individual orders (for the long and short options). We suggest a 10-contract position and will post the play in the summary if more than one reader can achieve the target credit.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL MAY-35.00 XLQ-EG OI=18 ASK=$0.10
SELL CALL MAY-32.50 XLQ-EZ OI=667 BID=$0.30
INITIAL "NET-CREDIT" TARGET = $0.25-$0.30
POTENTIAL PROFIT (X 10 contracts) = $250
MARGIN REQUIREMENT (X 10 contracts) = $2250
RETURN ON INVESTMENT (max) = 11.1%
COST BASIS = $32.75
INITIAL EXIT STRATEGY:
Once the position is open, traders should place a (contingent) order to close the short ($32.50) call options if the stock moves above $32.25. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.