Applied Materials Inks Kokusai Electric, Rides Trade Tailwinds

Applied Materials bought Kokusai Electric for $2.2 billion

by Patrick Martin

Published on Jul 1, 2019 at 9:50 AM
Updated on Jun 24, 2020 at 10:16 AM

It was a big weekend for Applied Materials, Inc. (NASDAQ:AMAT). First, the semiconductor name got a boost from the U.S.-China trade truce --more specifically -- the easing of U.S. restrictions on Chinese tech giant Huawei. Then, Applied Materials inked a deal to buy Japanese chipmaker Kokusai Electric for $2.2 billion. The deal bumps up the company's market share to over 20%.

Applied Materials stock is up 5.6% to trade at $47.51 in response, on track to post its best day since Jan. 24, and topple its year-over-year breakeven point. The shares are trading at new 2019 highs, pushing past the $46 level that contained a breakout back in April. Since AMAT's Dec. 26 bottom below $29, the stock has tacked on 65%. 

The options pits have heavily tilted in preference toward puts lately. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMAT's 10-day put/call volume ratio of 2.44 ranks 2 percentage points from an annual high, underscoring how the rate of put buying relative to call buying has been accelerated.

Now might be a good time buy options on the security, too. The chip stock's Schaeffer's Volatility Index (SVI) of 34% stands higher than only 28% of all other readings from the past year. This means near-term options are pricing in relatively low volatility expectations at the moment.

Plus, options traders will be pleased to know that AMAT has already shown a tendency to make bigger moves than options traders were expecting in the past year. This is based on its Schaeffer's Volatility Scorecard (SVS) of 88 out of a possible 100.

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