Buy the Dip on This Chip Stock

Plus, short-term AMAT options are relatively cheap at the moment

Jun 14, 2018 at 11:26 AM
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Applied Materials, Inc. (NASDAQ:AMAT) fell more than 2% earlier this week after the chip stock was downgraded at RBC. While the shares are trading down another 1% today at $50.49, history suggests it could be time to buy the dip on AMAT.

Taking a quick step back, the security has spent 2018 bouncing between $45 and $62, and is currently about 1.2% lower on a year-to-date basis. However, its most recent pullback has the shares within one standard deviation of their 320-day moving average after a lengthy stint above it -- a signal that's had bullish implications in the past.

amat stock daily price chart on june 14

In fact, according to Schaeffer's Quantitative Analyst Chris Prybal, in the two other times this signal has flashed in the past three years, AMAT stock went on to average a one-month gain of 12.64%, and was positive both times. Another move of this magnitude would put the equity back near $57, based on the current trading price.

Those wanting to bet on another big bounce for Applied Materials stock may want to consider doing so with options. The equity's Schaeffer's Volatility Index (SVI) of 29% ranks in the 13th annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment.

Plus, AMAT stock has consistently rewarded premium buyers over the past year, per its elevated Schaeffer's Volatility Scorecard (SVS) reading of 92 (out of a possible 100). In other words, the equity has tended to make outsized moves relative to what the options market was expecting.

 

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