$AMAT bulls reap big rewards

Option traders have been awarded profits once again as Applied Materials receives a big accolade.

On Jan. 31, Investitute’s tracking systems detected the purchase of 10,200 March $52.50 calls, as a part of a spread, for $3.14 to $3.32 with shares at $53.14. There was only 1,914 open interest in the strike before the activity appeared, showing that this was fresh buying.

Those calls traded as high as $9.14 today, nearly 3 times their original purchase price. The stock rose 16% in the same time frame, underscoring how options can far outpace gains in their underlying shares. It was the third winning AMAT trade posted on Investitute in as many weeks.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

AMAT was up 3.77% to close at $61.61 today. The chip-equipment manufacturer, which was granted Intel’s Preferred Quality Supplier Award this week, has rebounded with the rest of the semiconductor industry recently.