SOXL IV Just Hit 123%. These 2 Options Strategies That Pay You for the Risk.

Safe investments are all perfectly fine in certain contexts. Income strategies, dividend stocks, and companies we buy-and-hold all have their proper place in a well-balanced portfolio. 

But safety rarely pays much, and sometimes taking risks can lead to greater rewards. And besides, some investors can afford riskier trades - in moderation, of course. Just don’t make a habit out of it. 

And with that, let me present you with one of the most volatile semiconductor ETFs today: the Direxion Daily Semiconductor Bull 3X ETF (SOXL). 

SOXL is a leveraged ETF that tracks the daily performance of the NYSE Semiconductor Index, but it's cranked up to 3x. Three times the move, and by extension, that means three times the risk. 

More importantly, this 3x leverage resets every day. That means SOXL only tracks only the daily move itself, so it doesn’t track the Semiconductor Index’s broader, long-term move - which is likely to be extremely bullish, given the AI momentum. 

The result is a particularly aggressive investment. 

Layer that on top of how volatile the semiconductor industry already is, and that’s three times the fun. 

Now you don’t really buy this kind of ETF for holding- certainly not long term. Instead, you take advantage of that volatility by trading options on it. 

But which strategy? And at what strike price? 

Great questions. Let’s pop the hood and get the answers. 

How Volatile is SOXL Right Now

First, let’s check the ETF’s actual volatility metrics. The Options Data Dashboard, which you can find right here, can help with that. 

So here’s what we have: 

Based on our Technical Opinion platform, the ETF’s overall trend is bearish in all three monitoring periods. That's understandable, especially given how the stock has been moving recently. 

Meanwhile, volatility is falling, though IV rank is at 39%. For those unfamiliar, IV rank measures the stock’s implied volatility (IV) and compares it to its 52-week range. The lower the IV rank, the lower the current IV is in the range. 

This suggests IV is below normal levels and continues to fall. 

Now, ideally, I wouldn’t want to sell a put option with this volatility setup. Remember, short options work best when volatility is HIGH BUT FALLING. 

That said, SOXL is not an ordinary underlying asset. Current IV is at 123% - more than many stocks could ever reach. That means premiums are likely higher than your usual stock, so there’s opportunity there. 

However, a straight short put wouldn’t make sense here either, not when the trend signals unanimously point to a bearish outlook. 

In this case, I’d go with a bear call spread. 

What is a Bear Call Spread?

A bear call, also known as a call credit spread, is an options strategy that involves selling a call option and then buying another one with a higher strike price, all on the same underlying asset with the same expiration date. 

The goal is for the asset to trade below the short strike price at expiration. If that happens, the credit received at the start of the trade becomes crystallized profit. 

On the other hand, if the asset trades above the long strike by expiration, the trade ends at the maximum loss. 

Anything between these two strike prices will be a partial profit or loss, depending on how much credit you received and how far away the strikes are (width of the spread).

How to Find Bear Call Trades on SOXL As The Underlying

To find bear call trades on SOXL, you can click Vertical Spreads under the Option Strategies menu, then click the Bear Call tab. 

Once there, I’ll change the expiration date to September 25, 2026 from the dropdown. 

Why September 25 in particular? Well, it’s because that expiration date falls between 30 and 45 days - my preferred expiration days when selling options. It’s a sweet spot for most investors because it captures decent time value without being so long that capital- or, in this case, your potential exposure- isn’t tied up too long in one given trade. 

Then, I’ll change the default view to Show All to expand the selection. 

Now that I have a full list of potential trades, it’s time to look into strike prices. 

The easiest way is to look for the trade with the lowest loss probability, which is shown right at the end of the table. 

So, this 170-210 strike trade with the 19% probability of loss is the best candidate. 

According to the screener, I can sell this call credit spread and get $135 as net credit. If SOXL trades below $170 at expiration, that crystalizes into a profit with no further obligation. 

However, if SOXL trades above $210, the trade ends with a maximum loss of $3,865. 

Now, you might be thinking that that’s a bad deal. I mean, sure, a 29-to-1 risk/reward ratio isn’t exactly appealing. 

But this trade has several things going for it. First, it has an 81% probability of max profit, and an even lower 8% probability of max loss. 

Second, if I check the expected move tab, I can see the range in which SOXL is expected to trade within, based on current option prices. 

From here, I can see that the higher end is pegged at $154. Now, this isn’t a 100% predictor by any means, but it does show that my $170 short strike is well above the projected range. 

Then, I can jump over to the Trend tab. Again, bearish outlook all around, like what we saw before from the Options Dashboard. 

But I did want to check the 20-day moving average, which is at 130. 

For those unfamiliar, this smooths out SOXL's daily closes in the last 20 days to show the underlying trend, and right now the stock is trading well below it. But more importantly, my $170 short strike is well above it, giving me more confidence in my bear call trade. 

Overall, the setup lines up well. Outlook is bearish, trend signals are favorable, and the strike is comfortably above the higher end of the expected move range. Those are three independent metrics that point to the same direction. 

A Riskier Bear Call Trade on SOXL

“But Rick,” you might be saying, “what was all that about taking risks earlier, when you’re just giving us the safest possible trade now?” 

If that’s you, then you’ll be happier with this next trade. 

According to the screener, you can sell a 130-170-strike call credit spread and collect a cool $600 total per spread sold. The probability of max profit is at 57%. Sell two of these, and you’ll get $1,200. 

But the max loss this time is $3,400, and your chances of hitting that are now 19%. 

So why 130-170? 

Well, we previously established that $170 is a safe strike price through the Expected Move and Trends tabs. $130, meanwhile, is the 20-day moving average, which can serve as a short-term resistance. 

Now, I want to emphasize that this is a risky trade, especially with SOXL trading at around $121. But that’s the trade-off: less room to be wrong, but more premium to be had. 

Final thoughts

Just remember that you’re not limited to those two choices. Barchart’s default option screeners give you ample trades to pick and choose from, and you can even narrow them down further through additional filters. 

That said, no option trade is ever 100% certain, so always size your positions properly, conduct due diligence, and remember to roll, adjust, or close the trade if the situation calls for it.