I am 102702622 : frenzy? but it just started

ptssmario : thank you very much for the impressive useful article.

BujiBoy : Short put strategy in AVGO ? Wow that would be only for those with big accounts due to the Buying Power requirement.   Perhaps a short put spread would be more practical such that you dont have to put up such a hugh capital to open the position.  Just my 2¢

webguybob : Tap the gap.

75275501 : Recently, the U.S. market has shown signs of frenzy, with a growing number of stocks experiencing sharp rallies. Examples include $Oracle (ORCL.US)$ , which surged 35% after earnings, $NEBIUS (NBIS.US)$ , which jumped 49% after announcing a major deal with cloud computing giant Microsoft, and $Quantum Computing (QUBT.US)$ , whose single-day spikes of 20% is purely driven by market sentiments.
While these surges are tempting, buying in after the sharp rise often leads to significant losses. For instance, on September 10, Oracle's intraday fluctuation was as much as 10%, meaning investors who bought at the peak could have faced a 10% loss in just one day.
So, does this mean there are no effective strategies after a sharp surge? Certainly not. This article introduces follow-up techniques that investors can utilize after missing the initial surge, including options strategies.
1 After a Single-Day Surge: Profit-Taking
Generally, after a stock gaps up sharply, it often faces profit-taking pressure. Even Microsoft , which continued rising for three months after its Q1 earnings this year, experienced a gap-up followed by a pullback on the day of earning release. Chasing the stock immediately after a gap-up is extremely unwise, as you essentially provide exit liquidity for investors looking to take profits. Therefore, it is crucial to avoid the initial wave of profit-taking.
2 Extent of Profit-Taking Pullback
Whether the stock price rise or fall after the gap-up depends on the stock's valuation and market sentiment. Q1 this year, when the market was lowly valued, stocks like $Microsoft (MSFT.US)$ and $Meta Platforms (META.US)$ that gapped up after earnings were able to maintain their upward trend. However, for stocks reporting earnings in Q2, even if they gap up, consecutive profit-takings occur due to higher market valuations.
As to the extent of pullback, for example, Oracle fell from a post-earnings high of $345 to a low of $291 during profit-taking, a cumulative drop of 15.6%. Nebius, which surged 49% on news of a major order, saw a maximum pullback of about 12%. Stocks like Microsoft and Broadcom are still in the process of correction, without forming an effective rebound yet, with the extent of pullback generally around 10%.
Meanwhile, QUBT, which surged 26% driven by market speculation, corrected 13% the very next day, wiping out half of its gains. The intraday decline during the correction came close to 20%.
Investors should note that the extent of the pullback after a sharp surge or gap-up varies significantly between stocks and thus requires individual judgment.
3 After the Pullback: How to Profit by Options?
After the pullback, consider using options for bottom-fishing trades. However, the strategy differs based on the stock's implied volatility (IV). For high-IV stocks, prefer short put strategies. For low-IV stocks, long calls are more advantageous.
(1) Bottom-Fishing with Short Puts
For high-IV stocks, which exhibit greater volatility, taking long positions can lead to significant psychological pressure due to large swings. Additionally, the faster time decay (theta) of high-IV options adds to this stress. Using a short put strategy effectively avoids these disadvantages.
Methodology:
For expiration, a quarter (3 months) is suitable.
The strike price can be set near or below the pre-surge price range - which helps minimize assignment risk.
Close the position when the option's price decays by half or 40%.
Example: $NEBIUS (NBIS.US)$
After the announcement of a $19 billion order from Microsoft, Nebius's stock surged 49% in a single day, reaching a high of $100.51 the next day. It then fell to $86.78 on September 12, a cumulative drop of 13.8%. If an investor bottom-fished at that time, the stock rose to $114.85 over the next eight trading days, breaking above the previous high.
(2) Bottom-Fishing with Long Calls
Methodology:
For low-IV stocks, use at-the-money long calls with about two months to expiration to bet on a rebound.
There's no clear rule for exit timing; Investors should rely on technical patterns and set strict stop-loss and profit-taking points.
Note that using long call to bet on rebound is more difficult than short put.
Success Case: $Intel (INTC.US)$
After the news of NVIDIA's investment, Intel's stock hit $32.337 on September 18. Two trading days later, it fell to $28.73, a cumulative drop of 11.2%, before rebounding. As of the latest close at $33.99, it has surpassed the previous high.
Failure Case: $Broadcom (AVGO.US)$
After reporting earnings after the close on September 4, Broadcom reached an intraday high of $373 on September 11, then began a consecutive decline. As of the latest close, the cumulative drop is 10%. Any attempt to bottom-fish for a rebound during the decline would have failed.
4 Summary
In summary, regardless of the catalyst behind a stock's single-day surge or gap-up, volatility tends to remain high afterward. Investors can potentially profit from these fluctuations using options strategies. However, it's important to note that not every stock assures rebound after a pullback, and the timing of any rebound is uncertain. Therefore, some certain cut-loss methods should be indispensable.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more

Mr Goat : wait for right time to buy

105657362 : just buy all in. Zhou Gong confirmed Putin wants to award Intel with contract to buy 10 Trillion worth of Core i3 processors

The Stock Cartel OP : hmm thats good info. lms

曼波 : awsome

AI 投资精学 OP : Nice, hit 38.50 within a week..

106761510 : Do you have any recommendations for today?