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Applied Materials (AMAT) Premium Sellers Bet On Support

AMAT traders are employing puts to place neutral-to-bullish bets

by 2/12/2013 1:32 PM
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The shares of Applied Materials, Inc. (NASDAQ:AMAT - 13.64) are slightly lower at midday, but option traders are betting on short-term support for the semiconductor concern. More specifically, speculators are selling to open soon-to-be front-month puts to gamble on a foothold in the $13 region.

Jumping right in, AMAT has seen roughly 8,100 puts cross the tape -- more than twice its average intraday put activity. On the flip side, fewer than 4,200 AMAT calls have exchanged, compared to the normal 15,000 contracts.

Most active is the March 13 put, which has seen more than 5,400 contracts traded on open interest of fewer than 5,100 contracts, pointing to an influx of new initiations. However, 96% of the puts have changed hands at the bid price, suggesting they were sold.

By writing the puts to open, the sellers expect AMAT to stay north of $13 through mid-March, when the options expire. In this best-case scenario, the options will remain out of the money, and the sellers can retain the entire net credit. However, considering Applied Materials will step into the earnings limelight after the closing bell tomorrow -- an event that can trigger volatility -- this is a somewhat risky play. Should AMAT breach the $13 level, the sellers could be obligated to buy the shares at $13 apiece -- a premium to Street value.

From a broader sentiment standpoint, many option traders have been employing AMAT puts for more traditional reasons. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.73 stands higher than 66% of all other readings of the past year. In other words, option buyers have picked up AMAT puts over calls at a faster-than-usual clip during the past couple of weeks.

Technically speaking, the shares of AMAT have added more than 19% in 2013, ushered higher atop their 10-day moving average. This trendline is ascending into the $13.30 neighborhood, so the aforementioned put sellers could be counting on short-term support here.

Fundamentally, AMAT has exceeded analysts' per-share profit projections in each of the past four quarters. For the company's fiscal first quarter, Wall Street is anticipating a profit of 3 cents per share.


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