Federal Reserve Chair Jerome Powell delivered a quarter-point interest rate cut with a hawkish tone last Wednesday, causing stocks to tumble. However, the markets staged an impressive recovery on Friday, with the Dow Jones Industrial Average closing nearly 500 points higher. If this upward momentum continues, there could be plenty of opportunities to participate in the so-called Santa rally — especially in the chip sector. Nvidia (NVDA) , a key driver of the tech and semiconductor sectors, is beginning to attract buying interest, which could signal broader strength for the entire semiconductor space. One stock that stands out in this context is NXP Semiconductors NV (NXPI) . I cover many such setups in my book Mean Reversion Trading and provide further insights and resources on my website: https://tradingextremes.com . For this trade, I’m using the following technical signals: RSI (Relative Strength Index): RSI measures the strength of a trend. For NXPI, the RSI shifted direction on Dec.18 and is now moving upward, signaling a potential change in trend. DMI (Directional Movement Index): DMI identifies the dominant trend. When it is rising, this indicates a downtrend. However, when it begins to reverse, this suggests the downtrend is ending and a new trend may be forming. Price Action: Finally, the price itself supports the bullish setup. NXPI appears to have bottomed at $204 and is now showing green candles, suggesting the stock is beginning to recover. These combined signals suggest NXPI could present a strong opportunity if this upward momentum continues. The trade To take a bullish trade on NXPI, I am using a bull call spread. This trade structure involves buying a $210 call and selling a $215 call option as a single unit. If, on expiration day, NXPI is trading at or above $215, this trade will generate a 100% ROI on the capital invested. For example, with 10 contracts, this setup involves risking $2,500 to potentially gain $2,500. This defined risk-reward strategy is ideal for capturing bullish momentum while keeping the risk limited and manageable. Here is my exact trade setup: Buy $210 call, Jan. 17 expiry Sell $215 call, Jan. 17 expiry Cost: $250 Potential profit: $250 —Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading YouTube, Twitter: @TheMeanTrader Disclosures : Nishant has a NXPI 210-215 bull call spread expiring on 1/17/2025 DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
