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Trade Alert: AI Pin Action

Trade Alert: AI Pin Action

Another stock that could move if our earnings trade this week pans out.

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Portfolio Armor
Dec 17, 2024
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The Portfolio Armor Substack
The Portfolio Armor Substack
Trade Alert: AI Pin Action
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Looking For Pin Action

"Pin action", a phrase traders borrowed from bowling, refers to the knock-on effects one can find after a big movement in a particular stock. In yesterday’s trade alert, we opened an earnings trade on an AI-related hardware company reporting this week.

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What we’re going to do today is place speculative bets on two other AI-related hardware companies that could spike in sympathy if the hardware company reporting this week posts solid earnings and releases strong guidance. The reason is strong guidance by company #1 suggests strong demand for AI infrastructure more generally, and since companies #2 and 3 manufacture AI infrastructure components, that elevates their prospects too.

Betting On The AI Boom Broadening Out

The two companies we’re betting on today have a few things in common:

  • They have good profit margins, but not as good as Nvidia (NVDA 0.00%↑) or Broadcom (AVGO 0.00%↑).

  • Because of that, their share prices have lagged, giving them more attractive valuations. Both have Chartmill valuation ratings of 6 (on a scale from 0 to 10, with 10 being best), while NVDA has a valuation rating of 5 and AVGO, 4.

  • Their overall Chartmill technical ratings are low, but their set-up ratings are strong, indicating their share prices have been consolidating recently.

A Different Trading Approach For These Two

We used a call spread for yesterday’s hardware stock, to avoid IV Crush after its earnings release this week. For today’s two pin action names, which aren’t releasing earnings within the next month, we’re going to use out-of-the-money calls, which have uncapped upside.

Details below.

AI Pin Action Trade #1

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