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Applied Materials, Inc. (AMAT) Sees a Bevy of Pre-Earnings Call Volume

Ahead of earnings, traders eye AMAT's September calls

by 8/15/2013 11:34 AM
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Bullish traders set their sights on Applied Materials, Inc. (NASDAQ:AMAT) yesterday, which is on tap to report quarterly earnings after today's close. During the course of Wednesday's session, roughly 10,000 calls crossed the tape -- more than quadruple the security's average daily call volume, and almost five times the number of puts exchanged. Also of note, the stock's 30-day, at-the-money implied volatility closed at 34.3%, up from the previous day's figure of 31.9%.

At the helm was the September 16 call, where 4,360 contracts changed hands -- 82% of them at the ask price, signaling buyer-fueled activity. These near-the-money contracts traded at a volume-weighted average price (VWAP) of $0.35. Meanwhile, open interest at this strike jumped overnight, confirming the initiation of fresh bullish bets.

By purchasing the calls to open, speculators are counting on AMAT to trek north of breakeven at $16.35 (strike price plus the VWAP) by Sept. 20. This denotes a premium of 5.8% to the equity's current perch at $15.45. At last check, the delta for this call stood at 0.35, meaning it has a more than 1-in-3 chance of moving into the money ahead of what will soon be front-month expiration. However, even if the shares remain below the $16 level throughout the option's lifetime, the most yesterday's bulls risk parting with is the initial cash outlay.

Wednesday's campaign for calls over puts is a deviation from AMAT's recent trend in the options pits. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio sits at 1.12, indicating puts bought to open have outnumbered calls during the past two weeks. This ratio ranks in the 71st annual percentile, meaning traders have been scooping up puts over calls at an accelerated clip.

As a result, Schaeffer's put/call open interest ratio (SOIR) checks in at 1.04, with puts outweighing calls among options expiring in the next three months. This ratio ranks higher than 73% of comparable readings gathered during the last 52 weeks, conveying near-term options players are more put-focused toward the equity than usual right now.

Despite today's intraday drop, Applied Materials, Inc. (NASDAQ:AMAT) still sports a year-to-date gain of more than 35%, and has bested the broader S&P 500 Index (SPX) by over 6 percentage points during the past three months. Still, the shares are now threatening to break south of their 80-day moving average, which has contained all but two daily closes in the stock in 2013.

As mentioned earlier, the semiconductor name will reveal fiscal third-quarter earnings following tonight's closing bell. Analysts are expecting a profit of 19 cents per share -- three pennies shy of what was reported in the year-ago period. Although AMAT has topped consensus bottom-line estimates in each of the past eight quarters, the stock has gone on to trade an average of 1.8% and 3.4% lower the day and week after posting results, respectively.


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