Shares of Chinese semiconductor company Daqo New Energy Corp (DQ) are down nearly 40 percent in the past year. One trader sees a potential rebound ahead.
That’s based on the December 16th $50 calls. With 44 days until expiration, 2,849 contracts traded compared to a prior open interest of 113, for a 25-fold rise in volume on the trade. The buyer of the calls paid $2.28 to get in.
Shares recently traded for about $44, so they’d need to rise $6, or about 15 percent, in the next six weeks for the option to move in-the-money.
The company has had some strong rallies in the past, so such a move is possible. The stock has a 52-week high of $77 per share, so the strike price is quire reasonable.
The semiconductor company has been a solid performer in the past year, with revenues soaring by 108 percent. While that’s likely to slow, recent fears surrounding China and the semiconductor industry are a big reason behind the latest hit in shares.
Action to take: Investors who see the fears subsiding have a buying opportunity here. Shares will be more volatile than other semiconductor names, so look for a chance to take partial or quick profits on a jump higher in shares in the coming weeks.
For traders, the options are an inexpensive way to bet on a move higher in the stock in the coming weeks. Traders can potentially see high double-digit returns on a strong enough move in the stock.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.