Down Goes The SOX
This hasn’t been the
best time to own semiconductor stocks. The SOX
(
SOX |
Quote |
Chart |
News |
PowerRating) is down 28% in October
alone and down 47% since the beginning of September.
That sort of sell-off is why we’re seeing sky-high volatilities in virtually
every semi, but today we thought we’d focus on Applied Materials
(
AMAT |
Quote |
Chart |
News |
PowerRating).
AMAT develops,
manufactures and markets semiconductor wafer-fabrication equipment for the
worldwide semiconductor industry. If the industry sneezes, these guys catch a
cold.
From the second chart, you can see that AMAT has taken a beating, falling from 86 1/4
back in September to just 50 1/2 as of this report. They are due to report fourth quarter earnings on November 15. The Street is looking for $.75 a
share, but while we expect them to beat that number, we’re concerned as Micron Technology
(
MU |
Quote |
Chart |
News |
PowerRating)
blew by estimates and still got killed two weeks ago.
The three-month average volatility for AMAT options is 85%, with a one-month high of
125% earlier this month. Right now, three weeks ahead of the earnings, you could
buy the DEC 55 — 65 Call spread for 2 3/4. The volatility is unusually low
given the movement and the fact that the earnings are so close. We’re tracking
volatility at just 82%!
If you are into swinging for the fences, the December 50 straddle is trading for
$12. If volatility pumps up in the next two weeks to 120%, that straddle could
expand to $17. In the past week (since October 18), AMAT has moved from 50 to 40 1/2 and back up to 54, so it’s not like you couldn’t do a little scalping to
pay for the time decay.
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