Let's just face the brutal reality: STMicroelectronics (STM) is currently one of the uglier tech names on Wall Street. In the trailing month, STM stock has suffered a decline of nearly 21%, a byproduct of disappointing forward guidance. Subsequently, the ticker is only considered an 8% Weak Buy per the Barchart Technical Opinion indicator.
At the same time, for those who see the glass half-full, it's a positive development that STM stock is still considered a bullish opportunity. Some of that is due to the overall picture, where the semiconductor contract manufacturing and design company has witnessed a 109% lift in its market value on a year-to-date basis. Marvell Technology (MRVL) Stock Might Offer a Quick Bounce Before Earnings The Low-Cost VIX Hedge Most Options Traders Ignore Unusual Put Volume in Rare Earth Stock REalloys Could Be a Bullish Play on ALOY Markets move fast.
Keep up by reading our FREE midday Barchart Brief newsletter for exclusive charts, analysis, and headlines. Plus, analysts have overall been eyeballing the business. Sure, the third-quarter revenue guidance wasn't flattering but one miss might not destroy the entire enterprise.
And fundamentally, that's where the optimism comes into play — relevant tech firms should receive the discount treatment. Of course, this dynamic leads to an obvious question: when might investors (particularly the professional variety) buy the dip? Using an inductive analysis anchored to past market behaviors following similar bearish cycles, I believe there's a solid chance that STM stock could march higher over the next five weeks.
Specifically, I'm targeting the 55/60 bull call spread expiring Sep. 18. This trade requires a net debit of $205, with speculators hoping for STMicroelectronics stock to rise through the $60 second-leg strike price. If it does, the maximum profit is $295, translating to a payout of nearly 144%.
The idea sounds enticing, right? Well, the problem is the high probabilistic risk. If you work the numbers in the Expected Move calculator backwards, the probability that STM stock will hit $60 on Sep. 18 is only 27.55%.
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