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Show of support for Applied Materials

By: optionMONSTER
Posted: 7/2/2013 11:20:00 AM
Referenced Stocks: AMAT

Applied Materials has pulled back following a nice run, and traders think the bottom is in.

optionMONSTER's monitoring systems detected the sale of almost 5,300 October 13 puts for $0.29. Volume was almost 11 times open interest at the strike, indicating that new positions were initiated.

The investor is now on the hook to buy shares in the maker of semiconductor equipment for $13 if they're below that level on expiration. Above it, he or she will keep the $0.29 as profit while the contracts expire worthless.

Traders sometimes use this strategy when they like a stock but don't want to buy the shares immediately. Selling puts also lets him or her profit from the normal process of time decay , which affects all options. (See our Education section)

AMAT trading at $14.94 this morning, up 0.84 percent on the day and 31 percent so far this year. The stock has been trending higher as a strong economy and mobile demand boost sentiment toward the semiconductor industry. It's been holding support at its 50-day moving average in recent sessions, which could make some traders think that further downside is limited.

Total option volume in the name tops 7,000 contracts today, well above its daily average.