The semiconductor space was pulling back slightly Thursday after the SMH ETF that tracks the sector hit an all-time closing high Wednesday, but the options market is betting that Applied Materials' earnings report might help pull the chips to yet another record.
Applied Materials hasn't fared quite as well as many of its marquee competitors, gaining just 7% this year compared with the semiconductor index's 20% rise. The company is scheduled to report earnings after the bell Thursday. Despite the relative weakness, plenty of options traders are betting this is the perfect time to play catch-up.
"Calls outpaced puts by more than 2 to 1 on above-average volume. The options market right now is implying a move of 4.6%, that's in line with the 4.1% or so that the stock has averaged over the last eight quarters," Michael Khouw, chief investment officer of Optimize Advisors, said Wednesday on "Fast Money."
A 4.6% move up from Wednesday's close would put Applied Materials right around $69.56, which is slightly higher than what the day's most popular options contract was targeting for the stock.
"Where we saw a lot of that activity were buyers of the [August 14] weekly 65/67 call spreads," said Khouw, "That's a $2-wide call spread, they were spending about $1 on those spreads, so those are bullish bets, they're basically risking a dollar to make a dollar if earnings turn out to be positive."
Applied Materials was 1.9% lower in Thursday's session.