ASML Holding N.V. (ASML), Trending Stock Report

Another day and another chip stock. We’re attempting to remain relatively neutral with our market direction and our volatility expectations; we have a high-profit backspread (TSM) that makes money on a big move, we have a high-profit straddle (NVDA) that makes money on a big move, and today we have a new high-probability credit spread trade idea on ASML Holdings N.V. (ASML) that makes money on a small move with a slight directional bias.

ASML makes equipment for chip manufacturers. They mistakenly released guidance a day earlier than expected for their earnings report that is scheduled for this morning. Their guidance cited weakness in the industry for chips unrelated to AI, which led to delayed orders for new equipment. Not only was the guidance a surprise to show up a day early, but the cited weakness was a surprise that took share prices of chip stocks down along with ASML in yesterday’s trading.

The good news is that we were positioned well to take advantage of the down moves in TSM and NVDA and now we should be able to sell short-term ASML options in a limited-risk, high-probability trade to add balance to our portfolio of positions in the chip manufacturing sector.

This Volatility Term Structure chart for ASML shows us the implied volatility for the at-the-money options for each expiration. This chart shows that options expiring Friday have the highest volatility expectations. This graph tells us that the shortest-term options are the most expensive, relatively speaking. The mantra “buy low and sell high” tells us that we want to sell options for Friday’s expiration as part of our strategy.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of ASML’s share prices over the past year (the blue histogram). You can see that the actual stock movement shows that ASML does not make big moves in 3 trading days as frequently as current ASML options prices expect

Not only did ASML make a mistake releasing their guidance a day earlier than expected, but the news they released contained unexpected information on the chip manufacturing sector that the market interpreted as bad news. The good news for us is that we are well positioned in the chip manufacturing sector to take advantage of the news. Our positions in TSM and NVDA are in the black as of last night’s close. Now we can balance those high-profit positions in the sector with a limited-risk, high-probability trade on ASML this morning.

To get the specific details and prices on today’s trade idea, be sure to read today’s ODDS Online Daily Option Trade Idea.