There’s a famous saying in the market:
Buy low, sell high.
But it leaves out the other side of the equation. A side that’s just as lucrative for traders:
Sell high, buy low.
With options contracts, we don’t have to short-sell to take advantage of this strategy…
Short selling is inherently dangerous because there’s no limit to how high a stock could spike. Thus, theoretically, there’s no limit to the amount of money you could lose.
Options contracts aren’t like that. They have defined risk.
And in this market, where stocks spike for days on end, it can be simpler to identify a “high” than a “low”.
My Recent Pull-Back Trade
The tech and semiconductor sectors were on fire in April. Especially once Iran and the U.S. showed signs of a peace treaty.
Without the war weighing on the market, multiple stocks flew higher day after day.
- Aehr Test Systems (NASDAQ: AEHR)
- AXT Inc (NASDAQ: AXTI)
- Microchip Technology Incorporated (NASDAQ: MCHP)
Few were more impressive than Marvell Technology Inc. (NASDAQ: MRVL).
The company designs the semiconductor “plumbing” that moves data at high speed inside data centers, cloud networks, and AI infrastructure.
Its chips are critical to how hyperscalers like Amazon, Google, and Microsoft build AI training and inference clusters. As AI workloads demand ever-faster data movement between GPUs and servers, Marvell’s custom silicon and high-speed interconnect portfolio position it as a key player.
It’s no wonder the price spiked with the rest of the sector:
How do we buy the low on a stock that never dips?
We don’t. Instead, we look to sell the high.
On April 23, the biggest intraday spike, I alerted a put trade for MRVL.
The Magic of Options Trading
Here’s a chart of the intraday price action with my trade alert overlaid:
By April 28, the stock dropped about 12%… but short-term options contracts can increase that percent change exponentially, because of the contract’s time constraint.
My May 1 put contracts had a one-week expiration. And they almost doubled in value as the stock dropped 12%, a near 100% gain:
In case you missed it, let’s review.
Using put options for a short-selling strategy is safer (the defined risk) and leads to larger percentage gains compared to trading the regular shares.
“Buy low, sell high” is a viable strategy. I trade that angle every week.
But “sell high, buy low” is just as viable. And in a market where everything’s flying higher, it’s almost a no-brainer.
Every strong multi-day spike eventually pulls back. We just have to look for price action that shows us the stock is exhausted
MRVL’s big move on April 23, the biggest intraday spike of the run, screamed: “I’m exhausted, and I’m going to pull back.”
And thanks to the put contracts, I was ready to bank.
Play both sides of the coin!
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
