Old Tech is New Again

One of the most interesting things as the quarter pulls to a close is to see where the money is going today.  It is not going to NFLX, GOOG and FB.  After taking a good pasting the last couple of weeks, the darling stocks have not been able to get up off the mat.  They are still up a bit since January, but definitely off of the nosebleed levels of a few weeks ago.

What has taken off is old technology. Look at the PHLX Semiconductor Index.  I can’t remember the SOX on a run like this since the 90’s.  The valuations are a little more reasonable then they were back then, but the most interesting thing is how they have performed the last month or so.  It seems like every dollar that leaves the crazy growth stocks has found a home here.

Livevol (R) www.livevol.com

The hardest part is what kind of a trade at this level.  The SOX does not really trade anymore and the markets are too wide. Maybe some volume picks up when it crosses the $600 or it can put up 20%+ back to back results.  There might be better luck in the individual names.  Think of INTC or even stretch a bit to HPQ (a consumer of chips). Both stocks are holding up very well this year.

Livevol (R) www.livevol.com

I think the long term gamma trade can still work in certain names but needs some time.  The big indexes will barely record any gains so far this year, but there is plenty of unloved areas in the equity world that are just starting to pick up.

The Trade

IV is very cheap in the outer months (6 to 12 months).  Buying an outright call ATM looks good in an INTC or HPQ now, but you need a nice long time horizon for this.  HPQ is probably one of the cheapest stocks around and has come quite a way since we profiled it for this strategy last year in late 2012.

Follow Mark on twitter @optionpit & Andrew on twitter @optionvol   Disclosure: INTC position