Semiconductor stocks have been on a tear.
The ETF that tracks chipmakers, the SMH, has rallied 8 percent in the last week and is trading at six-month highs. But despite the recent surge, one trader is betting big that one of the ETF's largest holdings, semiconductor equipment company Applied Materials, has more room to run.
In a sizable trade Wednesday, "Options Action" contributor Mike Khouw said someone bet nearly $1 million on a 7 percent surge in Applied Materials in the next 50 days. In the specific wager, the trader bought more than 25,000 of the July 25 calls for 31 cents each. Since each option accounts for 100 shares of stock, this is a $775,000 bet that Applied Materials will surge above $25.30 by July.
If shares do go as high as this trader is expecting, it will be the first time the stock touches $25.30 since March 2015.
But Khouw says it's the timing of this trade is what's most interesting.
"It took place several days after earnings were announced," said Khouw. "Meaning they had plenty of opportunity to review the company's results and statements and digest the implications."
Shares of "AMAT" had already rallied 19 percent on positive data points in the company's earnings report on May 19 when the trader decided to place the bet. And according to Khouw, Applied Materials still looks quite reasonably valued even after the post-earnings pop in share price.
"AMAT is still trading at less than 14 times forward earnings estimates, a significant discount to the broad market and cheaper than many other companies that operate in the semiconductor space," he said.