What a difference a year can make! At this point last year, Applied Materials, Inc. (NASDAQ:AMAT) stockholders were sitting on year-to-date losses of more than 31% heading into third-quarter earnings. Now, AMAT stock is up more than 45% since the start of 2016, with the shares trading near multiyear highs.
And, given the performance of other chipmakers in the sector, Applied Materials stock has room left to run.
For the record, Wall Street is expecting earnings to jump 45% to 48 cents per share for Applied Materials, with revenue seen rising 14.2% to $2.84 billion.
That said, some analysts are expecting a little more from Applied Materials, as EarningsWhispers.com places the third-quarter whisper number at 49 cents per share — a penny better than the consensus.
Bullish sentiment is pervasive in the brokerage community. For instance, Zacks reports that 14 of the 17 analysts following AMAT stock rate it a buy or better.
But, there’s room for improvement as well, with the 12-month consensus price target of $28.45 handing out only a 4.5% premium to yesterday’s close.
Click to Enlarge In the options pits, speculative traders are also betting big on Applied Materials. At last check, the August/September put/call open interest ratio for AMAT rested at 0.44, with calls more than doubling puts among near-term options. This ratio rises only slightly to 0.48 for the August 19 series, with bullish sentiment holding firm for Applied Materials’ quarterly report.
Overall, August 19 series implieds are pricing in a potential post-earnings move of about 4%. This places the upper bound near $28.31, while the lower bound rests near $26.13 from the closing price on Tuesday.
A post-earnings rally would push AMAT above short-term resistance at $28, while a decline would still leave the shares some wiggle room to consolidate above support at $25.
2 Trades for AMAT Stock
Call Spread: Those traders looking to join the bullish contingent and ride AMAT stock’s rally higher might want to consider a Sept $28/$29 bull call spread. At last check, this spread was offered at 30 cents, or $30 per pair of contracts. Breakeven lies at $28.30, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if AMAT stock closes at or above $29 when September options expire.
Put Sell: However, if you’re not sold on AMAT’s rally, or if a more neutral-to-bullish stance fits your outlook for Applied Materials earnings report, an August 19 series $25 strike put sell may be more of a fit. At last check, this put was bid at 10 cents, or $10 per contract. If AMAT stock closes at or above $25 by the close on this Friday, traders entering this position will retain the premium received for opening the position.
However, if it trades below $25 ahead of expiration, then traders may be assigned 100 shares, at a price of $25 per share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
