Editor's Note:

We are adding Silicon Laboratories as a new call play, but only if the stock pulls back to its prior resistance near $49.00, which should now act as support. I am expecting to add bearish plays in the coming days but I want to see how the market reacts to the first round of earnings next week.


Silicon Laboratories – SLAB – close: 50.89 change: +1.15 stop: 47.95

Company Description:
Silicon Laboratories Inc. designs and develops analog intensive, mixed-signal integrated circuits (ICs) for a range of applications. Its mixed-signal ICs are electronic components that convert analog signals, such as sound and radio waves into digital signals that electronic products can process. The Company provides products for use in a variety of electronic products in a range of applications, including portable devices, satellite set top boxes, amplitude modulation/frequency modulation (AM/FM) radios, and other consumer electronics, networking equipment, test and measurement equipment, industrial monitoring and control, central office telephone equipment and customer premises equipment. Its products integrate complex mixed-signal functions that are frequently performed by numerous discrete components in competitive products into single chips or chipsets. (source: company press release or website)

Why We Like It:
SLAB broke out of resistance in the $49 area on Monday (4/5). The stock closed the week almost $2 higher at $50.89. SLAB is in the semiconductor sector which has been showing overall relative strength recently. The SOX index and SLAB have been holding their uptrend line, and upward channel, since February. I am expecting a quick retracement of SLAB down to its prior resistance line (which is now support) at around $49.25 which we will use as a trigger to buy calls. Our first target is $51.95 and our second more aggressive target is $53.95. Both of these levels are near highs from 2006 and 2003. We'll place our initial stop at $47.95.

Trigger to open bullish positions at $49.25

Suggested Position: CALL MAY $50.00, current ask $2.50, estimated ask at trigger price $1.30

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date 4/28/10
Average Daily Volume = 762,000
Listed on April 10th, 2010