Call Options Or Put Options On Applied Materials (AMAT)?

| September 25, 2013 | 0 Comments

Circuit boards and componentsSemiconductor equipment maker Applied Materials (AMAT) is making quite the splash this week.  The #1 chip equipment maker is purchasing rival Tokyo Electron for more than $9 billion.

AMAT shares are trading at $17.42 and are up 55% for the year.  The stock’s up 79% from the 52-week low of $9.75 and is just 1% below the 52-week high of $17.52.

Is this an opportunity to buy call options on AMAT with the company’s acquisition of Tokyo Electron?  Or should you buy put options on AMAT because of the possible negative consequences of such a big deal?

The bulls make a convincing argument…

AMAT is already the largest semiconductor equipment maker in the world.  With the purchase of Tokyo Electron (the #3 company), a new, massive company will be formed. 

This $29 billion company will combine efficiencies of the two integrating companies and help combat shrinking margins across the industry.

What’s more, the two companies were both best in class in different product areas.  As such, the new company will get the benefit of both top-notch products.  There will be very little overlap of products from this mega-deal.

But the bears have a compelling case as well… 

Because of the size of the new company, there’s the possibility anti-trust regulators won’t allow the deal to happen.  Not to mention, the costs of integration at such a large scale can be extreme.

Moreover, the benefits of this deal could already be built into the stock price of AMAT.  There’s no guarantee further stock appreciation from the merger is going to happen anytime soon.

It could take quite a while for the deal to actually go through, meaning a long period of waiting around for investors.

So is AMAT’s acquisition of Tokyo Electron a reason to be bullish on the stock, or are the drawbacks of a major acquisition a reason to bet on the downside?

If you think the bulls are right, take a look at buying the AMAT January $18 calls for around $0.80.

If you think the bears are right, take a look at buying the AMAT January $17 puts for around $0.70.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.