This Trade Targets a 70% Return by March 19

Option Trade Of The Day: Xilinx (Nasdaq: XLNX)

I don’t usually like to have too many open positions in the same sector or industry, but there are exceptions to the rule. My trade idea from yesterday was a semiconductor stock and I have another one for you today.

[hana-code-insert name=’adsense-article’ /]Chip companies have been hit by selling over the last few days just like the rest of the market, but Xilinx, Inc. (Nasdaq: XLNX) has held up relatively well.

XLNX did fall sharply after its earnings last week, but it was at an all-time high just prior to the report and the sentiment toward the company was pretty bullish.

Even after the disappointing earnings report, the company is still one of the most fundamentally sound companies out there.

It ranks in the top 20% for earnings growth over the last three years and in the top 20% for its profit margin, ROE, and sales growth.

While I received a bullish signal based on the daily chart, it was the weekly chart that really got my attention, along with the sentiment reading. The weekly chart shows that the stock has been in an upwardly-sloped trend channel over the past 18 months or so and the drop last week took the stock down close to the lower rail of the channel. The decline last week also caused the sentiment toward the stock to drop to its lowest reading of the past year. Previous low readings from the sentiment have been good indicators of rallies in the making.

Buy to open the March18 70 strike calls on XLNX at $4.25 or better. These options expire on March 16. Normally I set a minimum profit target of 100% for option trades, but given the increased in volatility in the last few days, I think a little caution is warranted and for this trade a gain of 70% should be good. That would mean that the stock would have to return to the recent high of $77.26 and a 7% move to the upside. I would use a move below the recent low of $69.66 as a stop-loss point for this trade.

— Rick Pendergraft

OPTIONS DISCLAIMER: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation,

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.