Filed under: Good news, Industry, Applied Materials (AMAT), Circuit City Stores (CC), Options, Technical Analysis

Applied Materials Inc. (NASDAQ: AMAT) shares are rising after the market has gotten some positive news for companies connected to LCD TVs. Circuit City (NYSE: CC) CEO Philip Schoonover predicted in an interview with the AP that 2008 will see high growth in TV sales as a result of the FCC’s mandate that broadcasters switch to digital format in February 2009. This could be good news for AMAT, which makes equipment to fabricate thin film transistor LCDs for televisions. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMAT.

After hitting a one-year high of $23.00 in August, the stock hit a one-year low of $16.13 in January. AMAT opened this morning at $20.28. So far today the stock has hit a low of $20.23 and a high of $20.45. As of 12:15, AMAT is trading at $20.35, up 26 cents (1.3%). The chart for AMAT looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $16 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. This particular trade will make an 11.1% return in just four and a half months as long as AMAT is above $16 at July expiration. Applied Materials would have to fall by more than 21% before we would start to lose money.

AMAT hasn’t been below $16 at all in the past year and has shown support around $19 recently. This trade could be risky if the economic situation continues to worsen, but even if that happens, this position could be protected by the support the stock might find at its 50-day moving average, which is around $18 and rising.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AMAT or CC.

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This entry was posted on Monday, March 17th, 2008 at 1:12 pm and is filed under Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.