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January 15, 2014  Wed 12:20 PM CT

AMAT: SEE CHART GET CHAIN FIND STRATEGIES
The technology bulls can't get enough of Applied Materials.

optionMONSTER has been citing AMAT's breakout pattern on our Market Action webinar since Friday, and the option paper has been flowing this week. On Monday our Heat Seeker tracking system showed buying in the January 2015 20 calls for $0.81, followed by the March 17s yesterday for $1.04. Shares are up, sending those January contracts to $1.10 and the March 17s to $1.38.

And the activity continues today: More than 45,000 contracts have changed hands so far in the session, almost 8 times average amounts. Even more notably, calls outnumber puts by a highly bullish 19-to-1 ratio.

Call buyers are returning to the January 2015 20s, adding another 14,000 contracts to their positions. They're also moving up to the January 2015 22 calls, snapping up almost 10,000 contracts, mostly for $0.57. (See our Education section)

AMAT is up 1.28 percent to $17.85 in afternoon trading. The chip-equipment maker surged about 80 percent between late 2012 and October and has been pausing since. The stock appears to have broken out of a consolidation pattern recently, suggesting that it's ready to continue higher.

In addition to this activity, optionMONSTER.com cofounders Pete and Jon Najarian recommended a bullish trade in the stock in their weekly Advantage Point education newsletter this morning.

While the company hasn't yet announced the date for its next earnings release, last year's calendar suggests it will occur in mid-February. It could also be affected by Intel's release tomorrow afternoon.

Disclosure: I am long AMAT.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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