Applied Materials crossed a technical level. Someone noticed. Someone wrote about it. Someone is now recommending a bull put spread with a $615 target.
A bull put spread. The options strategy for people who want upside exposure but also want to explain to their spouse why the risk was "limited" when it inevitably goes against them. You sell a put. You buy a cheaper put below it. You collect premium. You pray the stock doesn't fall through your short strike because then you're explaining theta decay at the dinner table.
Applied Materials makes semiconductor equipment. Machines that make chips. The stock broke above a key level, which means it went up past a line someone drew on a chart six months ago. That line mattered to exactly nobody until yesterday. Now it's a breakout. Now it's bullish. Now it's time to sell puts and cap your upside because why would you want unlimited gains when you could have $200 in premium instead.
The target is $615. Why $615? Because $614 looked weak and $616 looked greedy. Technical analysis is astrology for people who own Bloomberg terminals. A key level is wherever you decide to put the line after the stock has already moved. The breakout is confirmed by the fact that someone is writing about it after it happened.
Retail traders will see this headline. They'll Google "bull put spread." They'll watch a YouTube video. They'll open their Robinhood app. They'll sell the put. They'll buy the cheaper put. They'll check the position six times before lunch. The stock will trade sideways for three weeks. The options will expire worthless. They'll keep the premium. They'll tell everyone at work they're an options trader now.
Applied Materials doesn't care that you drew a line on its chart.
Photo by Markus Spiske on Unsplash
Leave a Comment