Down Goes The SOX
That sort of sell-off is why weâ€™re seeing sky-high volatilities in virtually
every semi, but today we thought weâ€™d focus on Applied Materials
manufactures and markets semiconductor wafer-fabrication equipment for the
worldwide semiconductor industry. If the industry sneezes, these guys catch a
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, weâ€™re concerned as Micron Technology
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 â€” 65 Call spread for 2 3/4. The volatility is unusually low
given the movement and the fact that the earnings are so close. Weâ€™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 couldnâ€™t do a little scalping to
pay for the time decay.
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