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Ahead of Earnings, Put Sellers Converge on Applied Materials

July-dated put volume swells on AMAT

by 5/16/2012 10:12 AM
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Applied Materials, Inc. (AMAT - 10.79) saw a flurry of put activity on Tuesday, after receiving a downgrade at Needham Research before the opening bell rang. More than 6,500 of these options crossed the tape, which was four times the equity's average daily volume. The bulk of the action centered around the near-the-money July 11 strike, where over 4,300 puts were exchanged -- most of them at the bid price, suggesting they were sold. Open interest at this strike jumped by 3,980 contracts overnight, pointing to an influx of new positions. This option is now home to peak put open interest of 15,814 contracts. By selling these puts to open, traders are expecting the stock to climb above $11 by the time July options expire.

This jump in put volume marks a change of pace for the semiconductor stock. The Schaeffer's put/call open interest ratio (SOIR) for AMAT checks in at 0.37, indicating that calls nearly triple puts among options slated to expire in three months. This ratio arrives in only the 8th percentile of its annual range, conveying that traders have been more call-heavy toward the stock just 8% of the time during the past 12 months.

From a technical perspective, AMAT has shed more than 24% on a year-over-year basis, and has lagged the broader S&P 500 Index (SPX) by around 13% during the last 60 sessions. On the charts, the stock is on pace to close a third consecutive week below its 40-week moving average, which had previously served as support since mid-January.

AMAT is scheduled to reveal its fiscal second-quarter earnings tomorrow, and has bested analysts' bottom-line projections in each of the past four quarters, according to Thomson Reuters. In the first hour of the session, however, the equity is down about 0.2% to trade at $10.79, after J.P. Morgan lowered its price target to $10 from $14.


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