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Applied Materials, Inc. (NASDAQ: AMAT) has been soaring since news of its merger with Tokyo Electron hit the Street. Specifically, AMAT reached a new five-year high of $17.52 yesterday afternoon, and today -- with a round of price-target hikes under its belt -- the stock journeyed even further to peak at $17.94. As such, in AMAT's options pits, total volume is up about 10 times the intraday norm, as activity has spiked on both sides of the fence.
Garnering the most attention today is the October 18 call, where roughly 15,000 contracts have changed hands for a volume-weighted average price (VWAP) of $0.24. The majority of the contracts went off at the ask price, and implied volatility has ticked higher at the strike, suggesting the initiation of fresh long calls. Additionally, data from the International Securities Exchange (ISE) confirms some of this is buy-to-open activity.
Today's call buyers purchased these near-the-money options in hopes that AMAT will continue to seek new highs over the next three-plus weeks. Specifically, they expect the stock to surpass the breakeven price of $18.24 (strike price plus the VWAP) by the close on Oct. 18, when front-month options expire.
This call has about a 50-50 shot of hurdling into the money during its lifetime, according to its current delta of 0.47, or 47%. On that note, if AMAT fails to climb atop the $18 mark by expiration, today's call buyers will not lose sleep, as the most they stand to lose is the initial cash outlay -- which is relatively inexpensive, considering the call's implied volatility of 25% sits well below AMAT's 20-day historical (realized) volatility of 36.3%.
From a broader technical perspective, Applied Materials, Inc. (NASDAQ: AMAT) has been on an upward trajectory over the past year, and has tacked on almost 60%. At last check, the stock was up 2% at $17.80.
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