AMAT Analysis

Applied Materials Inc. (AMAT)

Update 5/19/2017: AMAT’s shares rose sharply after earnings were published and then took most of it back in an immediate retracement. I exited for a debit of  $1.64, or 29.6% of maximum potential profit.

Shares had risen by 1.9% at exit over my entry price a day earlier, or a +689% annual rate. The optoins position produced a +40.4% yield on debit for a +15,736% annual rate.

AMAT publishes earnings on Thursday after the closing bell.

I shall use the series of monthly options that trade for the last time eight days hence, on May 26.

Implied volatility stands at 44%, which is  times the VIX, a measure of the volatility of the S&P 500 index.

AMAT’s IV stands in the 75th percentile of its annual range and the 89th percentile of its most recent broad movement.

The price used for analysis was $43.57.

Premium: $2.34 Expire OTM  
AMAT-iron fly Strike Odds Delta
Long 48.00 91.11 10
Break-even 45.84
Short 43.50 48.6% 54
Short 43.50 51.0% 46
Break-even 41.34
Long 39.00 90.6% 8

The premium is 52% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered a position on AMAT as described above. The stock at the time of entry was priced at $43.72.

By Tim Bovee, Portland, Oregon, May 18, 2017

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