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Applied Materials Bull Spread Flagged on OptionsHawk Sees Massive Return

by | May 29, 2023

Applied Materials (AMAT) a featured write-up on 4/19 and the July short puts now set to expire worthless while the upside call spreads wroth $12, a massive return on this interesting strategy and the flow timed the bottom in shares to the day!

The original write-up on 4/19 was:

Applied Materials (AMAT) with an interesting bull trade on 4/18 as 2465 July $95 puts were sold to open at $2.77 and 4930 of the July $115/$130 call spreads bought to open at $4.61, large net debit overall. AMAT flows previously have been mixed overall but two of the largest open interest lines are short May $100 and September $85 puts. AMAT shares have recently pulled back to late February support while the 200-day down near $103 and VWAP off the October lows near $105 along with a 38.2% retracement. AMAT is sitting on VWAP off the highs this week and $130 the target of these spreads would also be the 61.8% Fibonacci target on a move through 2023 highs. AMAT has leadership in materials engineering and seeing surging demand for new chip technologies the last few years quarters with long-term opportunity given secular shifts towards data centers, AI computing, and more which require highly complex chips utilizing new technologies and support the semi-equipment markets. AMAT should be a top beneficiary from China reopening and supply chain issues improving. Management has pointed to high utilization rates, increasing orders, and content increases in key growth end markets such as automotive as drivers of demand. AMAT has a $95B market cap and trades 16.5X Earnings, 3.6X Sales and 29.65X FCF with a 1.15% dividend yield. Forecasts see revenues slowing the next few quarters while EPS seen down 8% in 2023. Despite headwinds in memory, advanced logic, and China, AMAT posted strong results, led in particular by growth in legacy foundry nodes. AMAT will not report until later in May but we will see plenty of read-throughs from LRCX, KLAC and ASML. 1H numbers for all of the equipment companies are benefitting from deferred demand from last year’s component constraints. AMAT recently approved a $10B buyback. Analysts have an average target of $129 with short interest minimal at 1.2% of the float. “