Semis Falling On Lehman And SSB Downgrades

That news hit the semi sector hard, with INTC falling $1.33,
(
PMCS |
Quote |
Chart |
News |
PowerRating) slipping $.50,
KLA-Tencor Corp.
(
KLAC |
Quote |
Chart |
News |
PowerRating) losing $.58 to $58 and
Advanced Micro Devices (AMD) falling $1.27 to $17.98. With so many places to
look for downside trading opportunities, I consulted fellow TradingMarkets
commentator Goran Yordanoff to see which setups looked most exciting to the
market guru.

After a brief perusal of his proprietary models, Goran said his price target
was down at $52. Based on his
outlook, we looked at the KLAC August 60 – 55 put spread for $2.50.
If KLAC were to be unchanged at August expiration, we’d only lose $.50, as there is only $.50
of extrinsic (option premium) in that spread. However, a move under $55 means we
double our money at expiration.

A longer-term short play would involve the September 60 puts for $6 and the September 50 puts for $2. In other words, we’d be
looking at the
10-point put bear spread for $4. That would give us downside participation in
KLAC until September expiration with limited risk (just that $4 per
spread).