Mellanox Technologies Earnings Trade For The Envious

A hot name in the semiconductor space reports earnings tonight, Mellanox Technologies, $MLNX. The last report in April saw it leap 52% and that has many eyes on it hoping for a pullback to get in. Looking at the chart it has pulled back to the 50 day Simple Moving Average (SMA) and bounced higher today into the report tonight. But the short term trend is lower with support at the gap near 55 and then 44 below. The Relative Strength Index (RSI) shows it bouncing off of a lower low and holding in bullish territory over 40. The Moving Average Convergence Divergence indicator (MACD) is very negative but started to improve today. A bounce? Well the weekly chart is still set up lower but forming a Hammer, so maybe. The 3-box reversal Point and Figure chart using a $1 box size has a price objective of 50, but this would not preclude a pause and is better for a long

Mellanox Technologies, $MLNX

term view. Looking at the earnings price history the last 6 reports it has moved on average 14.5% or about $9.60 at today’s price, very similar to what is priced into the options. But remember 1 of the 6 data points was 52%. Take that one out and the average move drops to 6.5% or only $4.30. Maybe the options are over pricing it. If you are one of those people looking to get into this name cheaper here is a trade for you.

Buy the July 65/60 1×2 Put Spread for free. This is buying 1 July 65 Put and selling 2 July 60 Puts. It gives you $5 of downside gain at the maximum on a move to 60 and tails off to zero at 55. On a close on Friday under 60 you will be put the stock, but with a basis of $55. If the stock just runs higher you are out nothing.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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