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Aug 13, 2022

Applied Materials (AMAT) Q3 Earnings Preview August 2022

By:Ryan Sullivan

Key Takeaways:

  • AMAT has experienced a pullback comparable to those experienced by other large cap technology sector companies in 2022.
  • AMAT provides manufacturing equipment, services and software to the semiconductor, display, and related industries.
  • AMAT appears to have been able to weather the bear market because of the demand for their products and services.
  • August options can be used for a one-day binary earnings options play. The earnings report can be used as a catalyst for a September options position.

When does Applied Materials (AMAT) report Q3 2022 earnings?

Applied Materials (AMAT) reports earnings on August 18th, 2022, after the close.

How has AMAT been performing?

AMAT is currently trading at $109.40, down 30.65 percent from its opening price of 2022. AMAT’s all-time high price is $167.06, which was recorded on January 14th, 2022. Since January of 2022 AMAT has been in a bear trend, posting lower lows and lower highs. 

AMAT’s current IV Rank is 34.2, according to the tastyworks trading platform calculation. Implied Volatility in August options is about 51.7 percent and implied volatility in September options is about 44 percent. Short premium selling strategies in both expirations are feasible. 

AMAT has felt the pullback in the technology sector. As companies such as IBM, Apple, and Microsoft start to feel economic stress, AMAT we move with them as their stock price changes since these companies work so closely together in their industry.

Fig.1: Year to date price percentage change for SPY and AMAT.

What does AMAT do?

AMAT was founded in 1967 by Michael McNeilly and is currently headquartered in Santa Clara, California. AMAT provides manufacturing equipment, services and software to the semiconductor, display, and related industries. AMAT also delivers products and services that improve device performance, yield and cost. 

AMAT sells its products and services to manufacturers of semiconductor chips, liquid crystal, and organic light-emitting diode (OLED) displays, and other electronic devices. 

Much of what is created using AMAT products or services is used in either an end user product or is integrated into more advanced electronics further down the manufacturing process. AMAT operates in three reportable segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

How do AMAT’s financials look?

AMAT’s income statements over the last five quarters have been consistent to slightly positive. Sales rose from $5.5 billion to $6.2 billion. During that same period, net income oscillated between $1.5 billion and $1.8 billion. We want to see high net income to sales ratios like this. 

Over the last five quarters AMAT’s balance sheet has been constructive. Total assets grew from $24 billion to $25.4 billion. While total liabilities grew from $12 billion to $13.8 billion. It is an indication of positive growth when total assets and total liabilities grow at a similar, gradual pace. This indicates the business is taking on more risk as its assets grow, which is an indication of positive performance. 

It appears AMAT has been able to weather the bear market we are currently experiencing by leveraging the partnerships it has in the technology sector. AMAT’s products and services appear to be in demand from its customers even through economic downturn.

How should I trade AMAT August 2022 earnings?

Since AMAT reports earnings on the 18th after the close and the August options expire on the 19th, it is possible to make an earnings trade on AMAT using the August options. This type of trade, with one day left in the option, while also going through earnings, makes it a binary trade. 

It becomes a binary trade because if you place the trade on the 18th, you won’t have any time left on the 19th to defend the position. For that reason, if you do trade the August options for this earnings report, define your trade. That way you will know your max profit and loss prior to the earnings report. 

If you would like to use this earnings report as a catalyst for a position in AMAT, then use the September options. If you use the September options for this earnings report, place your trade on or close to the 18th. This will give you the purest exposure to the volatility surrounding the earnings report. 

Then, if the trade goes your way, you can take it off for a quick profit. If the trade goes against you, you have time to defend the position going into September. 

Premium for August and September options is rich enough for premium selling strategies. If you can manage an undefined position going into earnings, the 20-delta short strangle is paying a reasonable profit to buying power used.

To get started trading earnings announcements open an account on tastyworks!

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