A large trader is buying time for Applied Materials to rally in the long term.
A block of 19,989 January 22 calls was sold for $1.73 in volume well below the previous open interest of 163,530 contracts, while 19,989 April 23 calls were bought for $1.78, according to optionMONSTER's Heat Seeker system. Two hours later, blocks of 14,000 changed hands with January 22 calls sold for $1.67 and the April 23s bought for $1.72.
This could be a diagonal spread, betting that AMAT will hold around $22 and then move up from there. But it is far more likely that the trader is rolling a long-call position forward and to strike price that is $1 higher.
The adjustment cost a net $0.05 and is now looking for AMAT to climb above $24 by mid-April. The calls could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will lose value and could expire worthless if shares stall or drop. (See my column on rolling i in our Advantage Point newsletter)
AMAT fell 2.75 percent to $22.30 on Friday, its lowest close since Aug. 26. The semiconductor-equipment maker gapped up from $21 on its quarterly results in mid-August.
Total option volume in AMAT reached 80,000 contracts on Friday, 8 times the daily average for the last month.
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