Get Your Chips on the Table- Buy Semiconductor Equipment Calls

By Linda McDonough • December 21, 2017

The Trades:

Buy to open the February 16, 2018 call on Lam Research (NSDQ: LRCX) with a strike price of $200.00 at $5.20 or lower. Symbol (LRCX180216C200)

Buy to open the March 16, 2018 call on Applied Materials (NSDQ: AMAT) with a strike price of $55.00 at $2.55 or lower. Symbol (AMAT180316C55)

Buy to open the February 16, 2018 call on Ichor Holdings (NSDQ: ICHR) with a strike price of $30 at $1.15 or lower. Symbol (ICHR180216C30)

The Rationale:

Semiconductor stocks enjoyed a tremendous run in 2017, but a recent downgrade by Morgan Stanley sent the group spiraling, offering investors an excellent opportunity to get involved in chip manufacturing stocks.

While chip manufacturers themselves may be good buys, I like the chip equipment producers more, as demand for new production technology keeps them more insulated from swings in chip prices.

Chip prices doubled in the past 12 months. They will not likely increase at this rate in 2018, but estimates reflect this scenario.

Micron Semiconductor (NYSE: MU), one of the largest chip manufacturers, addressed pricing concerns on a December 19 conference call. CEO Sanjay Mehrotra noted that booming demand would outweigh any increased supply.

Chip manufacturers are upgrading production to more specialized chips, which garner higher prices. This unique demand helps insulate the semiconductor equipment manufacturers, whose stocks got unnecessarily hit this week.

Ichor Holdings is already in the Profit Catalyst Alert portfolio and I think is a great buy here on the drop.

All three companies will report earnings in February and March. I will send out the details of their earnings calls with what to look for as the dates are announced.

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Paul

12/21/17 ‐ 9:48am ET December 21, 2017 at 9:48am ET

Filled All 3 Calls at Recommended Prices.

Derek: Las Vegas, NV

12/21/17 ‐ 9:56am ET December 21, 2017 at 9:56am ET

Hey Linda,

What is you’re exit strategy on a typical trade recommendation? I.E,, do you set a profit target, want to wait for earnings/news event, etc.?

Derek

Linda McDonough

12/21/17 ‐ 10:37am ET December 21, 2017 at 10:37am ET

Hi Derek,

The exit strategy is usually linked to an event. Earnings for these three companies is the expected event for this trade. However, the sentiment was so bearish on the group I think the stocks may bounce sooner as investors digest the bullish commentary from Micron, who is a large customer of AMAT and LRCX. ICHR supplies product to AMAT and LRCX.

Best,
Linda

Victor

12/21/17 ‐ 10:01am ET December 21, 2017 at 10:01am ET

Filled LRCX and AMAT. Waiting on the ICHR to fill

Rick

12/21/17 ‐ 10:25am ET December 21, 2017 at 10:25am ET

Linda,

Thanks for the alert. I acted on all three. I did all three as Debit Call Spreads. I prefer to start in the money with the long call and with the long call being less than a 10% premium on the current price, so here are my trades:

LRCX BTO Mar $185 Call – STO Mar $210 Call – Net DR of $9.20
AMAT BTO Mar $50 Call – STO Mar $60 Call – Net DR of $3.80
ICHR BTO May $22.50 Call – STO May $30 Call – Net DR of $3.60

Happy Holidays to all.

Rick

12/21/17 ‐ 10:26am ET December 21, 2017 at 10:26am ET

Meant ot say and the premium to the long call strike being less than 10%

Linda McDonough

12/21/17 ‐ 10:34am ET December 21, 2017 at 10:34am ET

Thanks for the update Rick and happy holidays to you as well!
Best,
Linda

Derek: Las Vegas, NV

12/21/17 ‐ 10:35am ET December 21, 2017 at 10:35am ET

All three filled:

LRCX: BTO Feb 16 $200C STO Jan 19 $205C Debit $3.72
AMAT: BTO Mar 16 $55C STO Jan 19 $57C Debit $1.92
ICHR: BTO Feb 16 $30C Debit $1.15

Derek

JTK

12/21/17 ‐ 3:23pm ET December 21, 2017 at 3:23pm ET

Hi Derek,
I am a bit confused.
The recommendation is for BTO right and my understanding was Linda will send an alert on when to close the trade. Or am I supposed to do STO also at the same time
Thanks!

MODERATOR: Lisa G

12/21/17 ‐ 3:55pm ET December 21, 2017 at 3:55pm ET

Derek has modified the trades to be diagonal spreads as it lowers his cost so just ignore that.

JTK

12/21/17 ‐ 6:39pm ET December 21, 2017 at 6:39pm ET

Thank you Lisa.

Guest User

12/21/17 ‐ 12:51pm ET December 21, 2017 at 12:51pm ET

What happened with Dec 15 POST Puts

Linda McDonough

12/21/17 ‐ 2:24pm ET December 21, 2017 at 2:24pm ET

I recommended selling them on October 19th for a 45% gain.

However, if you’d held on to them, they would be exercised at $85 and you would cover the stock at $77.70 for a $7.30 gain on a $2.20 investment!

Best,
Linda

Sydnee & Howard

12/21/17 ‐ 3:02pm ET December 21, 2017 at 3:02pm ET

Hi Linda.
Bought shares of ICHR back in June. Would you recommend a covered call position now?

MODERATOR: Lisa G

12/21/17 ‐ 3:58pm ET December 21, 2017 at 3:58pm ET

LRCX filled for $4.30 and AMAT filled for $2.13. ICHR simmering. I have been doing put spreads on LRCX and AMAT since July and still am. Will be fun to do the calls too! I love both these companies.

William Stefanelli

12/21/17 ‐ 5:26pm ET December 21, 2017 at 5:26pm ET

LRCX filled @ 4.00
ICHR filled @ 1.15
AMAT simmering

Mike D

12/22/17 ‐ 10:07am ET December 22, 2017 at 10:07am ET

AMAT filled at 2.40
LRCX at 4.50
ICHR at 1.15

MODERATOR: Lisa G

12/22/17 ‐ 1:32pm ET December 22, 2017 at 1:32pm ET

ICHR filled at 1.10

Howard

12/26/17 ‐ 10:05am ET December 26, 2017 at 10:05am ET

ICHR filled at $1.00

John N

12/27/17 ‐ 11:47am ET December 27, 2017 at 11:47am ET

No chance to deal with all this due to holidays! (BTW – Happy Holiday!)
AMAT on 12/22 filled at $2.12.
ICHR on 12/22 filled at $1.10.
LCRX today 12/27 filled at $4.35.
Thanks Linda! I have had so many successful trades on your recommendations! Here’s hoping again…

Gary

01/02/18 ‐ 9:28am ET January 2, 2018 at 9:28am ET

HOW WILL WE KNOW WHEN TO CLOSE A TRADE?

Linda McDonough

01/02/18 ‐ 9:40am ET January 2, 2018 at 9:40am ET

Gary,
I will issue a trade alert when I suggest closing a trade. You will receive a text alert and an email. I suggest you sign up for the text alerts if you are executing options trades as the prices can move quickly.
Best,
Linda

K. Kazy

01/11/18 ‐ 3:48pm ET January 11, 2018 at 3:48pm ET

in about 4 weeks your dec. reco on ichr will expire——-is there any action that we should take as that date approaches. EPS should be reported about a week before expiration—-do you have an idea on what they may be ……..Kazy

Linda McDonough

01/12/18 ‐ 1:27pm ET January 12, 2018 at 1:27pm ET

Hello,
Ichor hasn’t announced its formal earnings date but you are correct, it should be on or about Feb. 12, right before the Feb. 16 expiration. Luckily the company will present at a brokerage conference next week on Jan. 18. While I don’t expect any significant new announcements, we should get a sign of management’s body language regarding the quarter.
Lam Research (LRCX) might announce around the end of January so we might get some news from them as well. We are out of those calls in the portfolio but the company’s news will drive the stocks of ICHR and AMAT.
In the past two quarters Ichor has had two decent sized acquisitions that I expect will help growth and profitability. I also expect the base business to continue clicking along. The company ended the September quarter with good momentum.
Best,
Linda

Phil Ash

01/22/18 ‐ 9:46am ET January 22, 2018 at 9:46am ET

I paid a bit more for the $25 strike on ICHR. Just got exercised and sold the stock for a 305% return. Thanks

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