DailyPlay – Opening Trade (AMAT) – August 23, 2024

AMAT Bearish Opening Trade Signal

Investment Rationale

AMAT is facing headwinds as the broader semiconductor sector faces mounting pressure. The AI-driven rally that previously bolstered semiconductor stocks appears to be losing momentum, with concerns about high valuations and potential supply chain disruptions. As a key player in semiconductor manufacturing equipment, AMAT is vulnerable to these sector-wide challenges. 

Technical Analysis

AMAT recently failed to break above the $215 resistance level, a critical area that has now been reaffirmed as resistance. The rejection at this level suggests that the stock’s upward momentum is slowing. The price action indicates a potential downside towards the $175 level, the next significant support. 

AMAT – Daily

Fundamental Analysis

While AMAT has strong profitability metrics, its growth rates are significant lower than the industry and the broader semiconductor industry is facing a potential headwind for the AI trade that had previously driven the sector’s gains. Trading at 23x forward earnings, AMAT’s valuation is risky given the growing uncertainties surrounding future revenues.

Trade Details

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish Credit Spread

Details: Sell to Open 2 AMAT Oct 4th $200/$220 Call Vertical Spreads $8.07 Credit per Contract.

Total Risk: This trade has a max risk of $2,386 (2 Contracts x $1,193) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,193 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that made a lower high in a downtrend.

1M/6M Trends: Neutral/ Mildly Bearish

Relative Strength: 4/10

OptionsPlay Score: 106

Stop Loss: @ $16.14 Debit (100% loss to the value of premium)

View AMAT Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View AMAT Trade