Trade Alert: Adding AMAT Calls Before Earnings



  • Heading into Applied Material’s quarterly earnings report tomorrow night, we’re adding the Applied Materials (AMAT) June 55.00 calls (AMAT180622C00055000)that closed last night at 2.04. As we do this, we’re setting a stop loss at 1.50 for the options.
  • We continue to have a short position in Funko (FNKO) shares, and our buy stop level remains at $10.00
  • If Target shares (TGT) breach our $75.00 buy stop level, we’ll step to the side with short trade and re-assess adjusted downside to had with the shares in the coming weeks.
  • Housekeeping: We were stopped out of Cummins Inc. June 2018 150.00 calls (CMI180615C00150000) earlier this week.


We are coming to you a day earlier than usual with Tematica Options+ for a few reasons this week. First, I’ll be traveling but second, I want to give subscribers enough time to get our new recommendation before the underlying company reports its quarterly earnings after tomorrow night’s close. With that in mind, let’s cut the chit-chat and get to it.

Adding a call option play on Applied Materials (AMAT)

Regular readers of Tematica Investing now we’ve had a long-term position in Applied Materials (AMAT), which I see as a Disruptive Technologies company given the combination of its semiconductor capital equipment and display business. With regard to the core semiconductor capital equipment business, I continue to see longer-term opportunities for it associated with a number of emerging technologies and applications (growing memory demand, 5G chips sets, 3D sensing, smarter automobiles and homes, and augmented reality to virtual reality and the Internet of Things) that will drive incremental chip demand in the coming years.

I’m also hearing that China’s state-backed semiconductor fund, The National Integrated Circuitry Investment Fund, is closing in on an upsized 300 billion-yuan fund ($47.4 billion) fund vs. the expected 120 billion-yuan ($18.98 billion) to support the domestic chip sector. This buildout was one of my focal points behind adding AMAT shares to the Tematica Select List over a year ago.

As the current earnings season got underway, we heard very positive commentary on the semiconductor capital equipment market from several competitors, including Lam Research (LRCX). This lays the groundwork for an upbeat report despite the softness we are seeing in the organic light emitting diode display market over the last few months and are expected to in the near-term.

For Applied, expectations call for it to deliver EPS of $1.14 on revenue of $4.45 billion after tomorrow night’s close. For those at home keeping score, those figures are up 44% and 26%, respectively, on a year over year basis. Aside from the positive competitor commentary, let’s remember that Applied had $8.8 billion remaining under its share repurchase program coming into its most recent quarter. Given the volatility of AMAT shares over the last several weeks, odds are the company put that program to work, which would shrink its share count for the quarter and for upcoming ones. In other words, there is a high probability of very favorable EPS comparisons to be had tomorrow night and a boost to the company’s EPS outlook relative to expectations.


Checking in on Funko shares

Shares of pop culture company Funko (FNKO) moved against us last week following modestly better than expected quarterly earnings. It appears my thesis for our short position – the negative impact to be had from the Toys R Us bankruptcy and liquidation sales – is taking longer to play out than expected. At the same time, FNKO shares have moved deep into overbought territory. I counsel patience with this position, especially coming out of yesterday’s April Retail Sales report that showed continued weakness in the line item that corresponds to Funko’s business — Sporting goods, hobby, book & music stores.

With real wages largely unchanged, rising gas prices and debt servicing taking a bigger bite out of disposable income, I’m inclined to keep our sort position on this business that hinges on discretionary spending intact. If the market continues to move higher in the near-term, the risk we run is we could get stopped out of FNKO shares.

  • We continue to have a short position in Funko (FNKO) shares and our buy stop level remains at $10.00


Watching our Target short

Also spinning out of the April Retail Sales report, general merchandise stores, like Target (TGT), continued to lag overall retail sales gains during the month and over the last three month. Despite that loss of wallet share, Target shares are trading up today in tandem with Macy’s (M), which reported better than expected bottom line results. Even after stripping out the positive impact of tax reform and share buybacks, Macy’s pre-tax income was still up more than expected but let’s remember that Macy’s has a robust online business – very different than Target.

If Target shares (TGT) breach our $75.00 buy stop level, we’ll step to the side with short trade and re-assess adjusted downside to had with the shares in the coming weeks.



Earlier this week we were stopped out of Cummins Inc. June 2018 150.00 calls (CMI180615C00150000). I continue to hear more this earnings season over the rising transportation costs and rising new truck orders. I’ll keep this on the back burner and look to re-engage in the coming weeks.




About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

Comments are closed.