B. Riley Likes LRCX Before Earnings, But Options Traders Disagree

There's been unusual put activity on Lam Research

Apr 22, 2019 at 10:08 AM
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Lam Research Corporation (NASDAQ:LRCX) is trading 0.7% higher at $196.10, after brokerage firm B. Riley upgraded its stance to "buy" from "neutral," while lifting its price target to $235 from $170. The analyst note said an in-line quarter can be expected when the semiconductor equipment and services producer reports earnings after the close this Wednesday, April 24, but more upside should be ahead for the security throughout 2019. The company's last earnings release in January is a big reason the stock's outperformed in 2019, as the shares surged almost 16% the day after the report.

However, data from the options pits shows traders taking a more defensive stance before earnings. Lam Research's 10-day put/call volume ratio of 1.48 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 92nd annual percentile, showing a much stronger-than-normal demand for long puts over calls. Similarly, the Schaeffer's put/call open interest ratio (SOIR) of 1.64 lands in the 90th annual percentile, revealing a heavy put-skew among near-term speculators.

Much of this is due to peak open interest at the front-month May 180 put. Data from the major exchanges shows almost exclusive buy-to-open activity here, meaning these traders are expecting the shares to pull back below $180 in the coming weeks. The 50-day moving average sits right near this strike, a trendline that cushioned the equity's pullbacks in March.

More broadly speaking, the majority of analysts in coverage have "buy" or "strong buy" ratings on LRCX, though there are also seven sitting on the fence with "hold" ratings. Elsewhere, short interest has been declining in recent reporting periods, but four days' worth of buying power is still in the hands of these bears, going by average daily volumes.

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