Applied Materials (AMAT) Might Be a UFO!

I was told that I have a mat in my belfry, so I decided to check to see if it might be a UFO! Oh wait, it’s just bats.

I actually picked up AMAT a couple days ago, but it's fallen a bit further since then so I thought it might be good to discuss today. But before that...

What's the Word on the Street?

The markets are down again today. Investors have been betting on an interest rate cut next month, but there are fears that might not happen, or at least the chance of it happening has become less likely. The hope is that the Federal Reserve Chairman can provide some clues tomorrow morning during his speech at the economic symposium in Jackson Hole.

Applied Materials (AMAT)

What Is It?

Applied Materials, Inc. provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through the following segments: Semiconductor Systems, Applied Global Services, and Display. The Semiconductor Systems segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation. The Applied Global Services segment provides solutions to optimize equipment, performance, and productivity. The Display segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, equipment upgrades, and other display technologies for TVs, monitors, laptops, personal computers, smart phones, and other consumer-oriented devices. The company was founded on November 10, 1967 and is headquartered in Santa Clara, CA. The listed name for AMAT is Applied Materials, Inc. Common Stock. 

Why Is It a Possible UFO?

Primarily its current share price relative to its fair value and what other option traders expect are the reasons AMAT could be a UFO.

What About Recent News?

AMAT has fallen since reporting weaker guidance last week during their earnings report. There is uncertainty about Chinese equipment spending and AMAT's exposure to that possibly oversupplied segment. All of that combined with the ongoing tech rout has left AMAT's stock in a potentially weaker position than it should be.

What's the Current Price?

Essentially flat on the year, AMAT has fallen ~16% in the past week and it's down again on the day.

What’s the Fair Value?

I’d first like to emphasize that fair value is subjective. Many analysts at many banks and institutions rate stocks differently and assign fair value in their own unique way. So, what I like to do is take all the recent fair values since the most recent earnings report and average them. In this case…

Since AMAT's most recent earnings report on 08/14/2025, it has received 13 ratings and taking the average, the fair value might be somewhere around: $191.31.

7 ratings are a Buy, 5 are a Hold, and the Morningstar rating is unknown. The lowest price target is $170, while the highest is $220.

What Do Options Traders Expect?

Calls are trading over equidistant Puts, which means traders think there is a chance to the upside. You can see because… forget about the green columns and focus on the red. Notice how on the right side for the $150 Put it says $1.92, it’s $2.28 for the equidistant Call at $175.

The premium (the credit you receive for executing the trade) is currently less for selling Puts, as opposed to selling Calls. Basically because of that, option traders expect the stock to go up, rather than down.

How About Volatility?

The IV rank (the purple line) for AMAT (stock price in blue) is currently hovering around 6.97, which is pretty low (IV rank goes from 0-100). This makes short strategies (which are what I prefer) less attractive.

What's the Trade?

My preferred trade is a variation of the wheel without the rolling, AKA cash-secured puts. I typically like to target stocks that offer a dividend and are below fair value. 

Why a dividend? If the trade results in assignment and I’m on the hook for X amount of shares, I can at least be satisfied knowing I picked a (hopefully under fair value) company that will pay me a small amount while I run the other side of the trade AKA covered calls.

AMAT does offer a dividend with a yield of 1.03%.

It’s a fairly low-risk strategy (all options trading is risky!), that has a higher probability of success, but requires a higher amount of collateral. 

So if you saw the most recent image above, I already STO (sold to open) 1 contract of the $150 Put for the September 26th expiration. I like to have a DTE (Days To Expiration) that is around ~45 days.

When the trade reaches 50% profit I will buy it back. I don’t like to be greedy and go for more profit, because I would rather not waste my time being in a trade for too long.

What About Alternative Trade Ideas?

1. If the collateral requirement is too high, another idea is a put credit spread. You would sell a put at a strike below the current share price and then buy a put at a lower strike than the put you sold. By doing so, you will avoid the collateral requirement of a cash-secured put, but the credit received will be smaller. Also, if the trade goes sideways, you will not be assigned shares so no collecting dividends and running covered calls afterwards.
2. Just invest! 1 share or even fractional shares are a way to get a foothold in a stock that you think might increase in value.

Wait…Where Are the Candlesticks? And All the Other Indicators?

I know many traders love their candlesticks and a ton of indicators. I prefer simplicity. Candlesticks aren’t necessary unless you’re the kind of trader that wants to try and pick the perfect moment to execute a trade, and even then it’s not a sure thing. 

As for indicators, there are a ton. Some of them work sometimes. None are perfect. I don’t want to get bogged down with too many. You’ll drive yourself crazy looking at too many of them, so find a handful you like and stick with those.

Disclosures

• I currently have an open trade with AMAT (as mentioned in this post).
• No trade is a sure thing. There is always risk involved. 
• This blog post is not meant to take the place of financial advice, but hopefully acts as a guide for learning or informational purposes.