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When a stock gaps up 20% on earnings and keeps running, most traders either chase it or ignore it. I’m doing neither.
After Micron (MU) exploded higher and stretched to levels more than 30% above its 50-day moving average, I started looking for a defined-risk way to position for what usually follows a move like this — a pause.
Not a meltdown, just a cooling-off period that brings price back toward something resembling normal.
If I’m going to fade a rally this extended, I want a setup that rewards me for being early without punishing me if the rally goes a little further. And that’s exactly why I turned to a call condor, so let’s discuss how to play this…
The Setup: Fading an Overextended Rally
MU didn’t just push outside its Bollinger Bands — it walked along the upper edge of them for days. The distance between price and the 50-day moving average has grown wider and wider since April, creating the kind of overextension that typically doesn’t last.
When you see a stock sitting 30% above a major moving average, you’re not dealing with a normal trend anymore. You’re looking at something stretched.
To capitalize on that kind of stretch without trying to pick an exact top, I built an Aug. 21 expiration call condor using a 20-point wide long call spread at the $155/$157 strikes, and a 30-point wide short call spread at the $160/$163 strikes.
The structure collected a $5.00 credit, giving me a max risk of $500 with a potential $2,000 reward if MU chops, stalls or pulls back into the profit zone. It’s a defined-risk way to express a bearish lean while still giving the stock some room to breathe.
The break-even sits at $162.50, which means MU can keep drifting higher and this setup still has a chance to work. I don’t need a collapse — I just need the rally to slow down, which it did Friday with MU pulling back over 5%.
Why Patience Matters More Than Prediction
The challenge with fading an extended move like this is that implied volatility in semiconductors is still extremely elevated. When volatility is pricey, you can’t just take whatever credit the market offers.
Paying up or accepting a mediocre reward-to-risk ratio turns a good idea into a bad trade.
This is where patience becomes the real edge. I placed the condor as a pending order at the price I wanted and let the market decide if it would come to me. I’m not risking $500 to make $500 or compromising on an entry just because the setup looks attractive.
Elevated volatility means prices can swing wildly, and those swings often improve the fills for trades like this. It’s not about being first — it’s about being selective.
The timing could be early. Sometimes the real volatility doesn’t show up until weeks later. Sometimes the market refuses to give the entry. That’s all fine. My goal isn’t to force a top, it’s to position for a realistic pullback with favorable odds.
And it’s not just MU showing this behavior. The semiconductor group as a whole has been riding the same wave — Western Digital (WDC) pushing higher, SanDisk (SNDK) following along and Intel (INTC) pressing into resistance. All of it has been amplified by MU’s surge.
But extensions like this don’t persist forever. I’m not calling the top. I’m just preparing for the moment when the market exhales — and if it does, this condor pays me four times what I’m risking for simply being patient and disciplined.
If you want to follow along, try to work the same or close to it entry I got. Don’t force it, let the trade come to you.
I’ll see you in the markets.
Chris Pulver
Chris Pulver TradingÂ
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