Check out ON Semiconductor (research and trade ideas)

This past week has been the most volatile trading week in several years. It’s very reminiscent of the free-fall trading activity during the 2008 crash…but luckily, we’re not in 2008.

This time around earnings are strong, companies are growing and there is bullish sentiment on the street. But this volatility will likely stick with us (which is good for options trading)…due to inflation fears.

Buying options can be tricky in this climate, you have to research the opportunities and give yourself time.

So to help us all out, I think I’ve found a long-term bullish stock prospect that’s rooted in the rising semiconductor sector with a focus on energy efficiency, automobiles, aerospace and defense, computing, medical, communications and more. You can read more about the company here.

(ON) has come onto my radar as a LEAPS® trading candidate.
See the long-term monthly chart:

Now, for the shorter-term chart analysis, here’s the 3-year daily chart:

Here’s some fundamental insights about
ON Semiconductor (ON):

  • 5-10 million shares traded per day = liquid stock
  • 52 week high: $25.60
  • 52 week low: $14.00
  • Currently trading at $21.35
  • Put-call ratio in the options chain is 0.30 (very bullish)
  • Current market cap: $9 billion — room for a double in 12-18 months?
  • PE Ratio: 23 = fundamentally sound
  • Free Cashflow per share: $2.49 — I love this number!
  • ON is within range of the current ratio of 2 – it’s solvent from a balance sheet standpoint to meet short-term debt obligations (on the cusp tho…)
  • Rising sales per share is good
  • Growing earnings per share makes us happy as investors
  • The recent pullback of about -20% in the past week or two makes for an interesting entry point (could scale into this as a smart strategy also)
  • We’re hitting the 150-day moving average — 3rd time in 14 months
  • Long-term Cup & Handle pattern (which makes me think the stock could double in the next two years)

CHECK OUT THE (ON) OPTIONS CHAIN:

See the red flag (in yellow) on the 25 -strike calls for January 201915,700 contracts?

This makes me think somebody out there is making a very large bet of approximately $3 million using the derivatives…and that makes me think I need to follow suit, based on the fundamentals. As far as trading strategies, I like these:

  • Buying the January 2019 25 calls — follow the money
  • Buying January 2020 35 calls –– a little cheaper and another year is nice
  • I also marked the April 2018 puts to sell the 21/20 put spread for an attractive short-term income trade (1:1 Risk-Reward) — for those that resonate more with that strategy in this type of market.

I like all three of these trades.

The wealth building trade would layer up the 2019 and 2020 calls. This trade is poised to make several 100% percent gains if the trend continues in the months and years ahead.

Furthermore, you could also always sell front month options against your LEAPS it as it goes higher (when it gets closer to the money). I do this a lot with my trades and teach it all the time in my programs.

Now, if you’re more conservative and comfortable with trading stocks you can simply just buy the shares (sell from covered calls for income as deemed necessary), which is a solid long-term strategy for all risk types.

Check it out for yourself and let me know what you think.

Here’s to our trading success!