Applied Materials, Inc. (AMAT) Traders Expect a New Year Slide

Applied Materials, Inc. (AMAT) skeptics are buying front-month put options

by Andrea Kramer

Published on Dec 31, 2014 at 1:50 PM
Updated on Apr 20, 2015 at 5:09 PM

Applied Materials, Inc. (NASDAQ:AMAT) has stair-stepped higher in 2014, with the stock on pace to notch a 42.4% annual gain. Today, the equity is flirting with breakeven at $25.22, yet option traders are gambling on a rough start to the new year for the shares.

AMAT's intraday put volume is running at twice the average clip, and the security's 30-day at-the-money implied volatility has jumped 5.3% to 29.9%, reflecting a growing demand for short-term options. Indeed, the stock's January 2015 25-strike put is most active, and it looks like traders are buying the contracts to open.

By purchasing to open the at-the-money puts, the buyers expect Applied Materials, Inc. (NASDAQ:AMAT) to breach $25 within the next few weeks -- specifically, on or before expiration on Friday, Jan. 16. However, in order to do that, AMAT would need to give up a perch atop its 10-day moving average, currently located at $25.13. This trendline, along with its 20-day counterpart, has ushered AMAT to 11-year highs over the past few months.

Daily Chart of AMAT since September 2014 with 10-Day and 20-Day Moving Averages

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