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With a little over a week left in February, the markets are surging to fresh new highs on the back of optimism that the war in Ukraine could take a turn for the better.
One stock that got my attention is Super Micro Computer. As a shareholder with an average cost of around $65, I’ve seen stock beaten from a high of $114, down all the way to $18.58 in November 2024. This was due to Hindenburg Research's scathing report outlining concerns with their accounting practices. Super Micro denied the allegations, and since that time, they’ve hired a new auditor and plan to release their 10-K by Feb 25, 2025. This is an important date to recall, which I’ll cover a little later.
Last week, Super Micro released a Q2 business update, surprising investors with $40 billion in revenue for FY’26, in part due to an increase in orders.
The result? Over the last month, SMCI stock is up 71.96%, outperforming even Palantir over the same period (though it was really close).Since I already own enough Super Micro, I would like to use a short-term options strategy to further profit from it’s upward price action; that’s why today, I’ll use a bull put spread.
What is a Bull Put Spread?
Traders use bull put spreads to sell put options without tying up excessive amounts of capital.
As a quick refresher, to sell a put, one needs to be able to buy 100 of the underlying security, should they be assigned. And that means tying up 100x the strike price in cash or margin.
With a bull put, a trader will sell a put option, and buy another at a lower strike price, on the same underlying security and at the same expiration date. The long put protects the investor (and the brokerage) from any price action below its strike price.
Finding a Bull Put on SMCI Stock
Considering Feb 25, 2025 is a key date for SMCI, I would screen for an SMCI bull put with an expiration just after that date - with the intention of closing it before the release.
While the default results are fine for most traders, I prefer to refine my search. The “screen” link allows me to filter for further refined results.
Because I'm bullish on the stock, I'll accept a probability of profit greater than 70% and results that are at least 5% out of the money - on the short leg.
The results are in, and I’ve sorted them by the probability of profit. All of these would make fine choices; however, I prefer the 2nd option as it pays $106 per contract, with a low risk/reward ratio of just 2.77 to 1.
Trade Setup
To set up the trade, the screener suggests selling the $49 strike put expiring February 28, 2025. You'll collect $2.89 per share and buy the $45 strike put for $1.83 per share - also expiring February 28, 2025. The difference between the two premiums will net $1.06, or $106 per contract - which is the net premium on the trade.
The breakeven price is $47.94 - so, as long as SMCI trades above it by expiration and closes out the trade, you’ll make a profit, even if it’s only one cent.
Maximum profit is $106 per contract and occurs if the stock trades above $49, and maximum loss is $294 per contract and occurs if SMCI trades below $45 at or before expiration.
As a conservative investor, you could set up a bracket order that will trigger under a certain circumstance. Options traders typically configure setting take profit orders around 70% of the net premium, and stop-loss orders once the premium increases 50%. That translates to a take-profit order of $0.31 and a stop loss of $1.59. Of course, this is completely optional, but, in my view, it allows the brokerage to work for me, while I’m busy doing other things.
Regardless if you set up your bracket order, it’s prudent to close this trade before the 10-K release as this is their annual report, which was significantly delayed - and if the company misses the deadline, they face delisting from the Nasdaq. If that happened, the stock would surely plunge.
Final Thoughts
Bull put spreads can be an easy way to earn from an underlying’s increasing stock price. SMCI stock has been on an incredible upward trend, and I doubt it will change - so long as something negative doesn’t come out before the 25th.
