Applied Materials Shows Huge Unusual Put Options Activity - a Bullish Signal

Applied Materials (AMAT) , a semiconductor chip equipment and software maker, is showing highly unusual out-of-the-money (OTM) put options activity today. AMAT stock is off its highs. This could be a bullish signal ahead of earnings.

AMAT is down over 4.6% today at $575.11 per share. It's off from a peak price of $723.00 on June 30. However, since its last earnings release on May 14, where the company showed lower free cash flow (FCF), AMAT has risen over 30.5% ($440.56).

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Applied Materials' fiscal Q3 earnings release is expected on Aug. 13. That's important in relation to today's unusual put option activity.

This involves a deep out-of-the-money (OTM) put contract expiring Aug. 21. That's a week after the upcoming Q3 earnings release.

Moreover, the strike price is $330.00, which is $245.11 lower than today's price, i.e., -42.6%.

So, buyers of these puts expect AMAT to tank after its upcoming earnings release. They must be expecting that the company will show extremely lousy results.

Or maybe Applied Materials will show negative free cash flow (FCF). That's the only way AMAT might tank this far. But is that likely? Probably not.

As a result, today's unusual put options activity is actually a bullish signal.

It shows that over 4,000 put contracts have traded at $330.00, almost 43% lower than today's price. Let's look further into what is going on with Applied Materials.

Last quarter, due to heavy working capital, tax, and legal payments, Applied Materials posted lower cash flow. This was what the company said on page 21 of its earnings presentation.

So, it seems reasonable to assume the dip in free cash flow (FCF) last quarter was a one-time event (i.e., it posted just $210 million in FCF compared to $1.06 billion last year and $1.04 billion in the prior quarter).

As a result, analysts' higher revenue projections could lead to higher FCF. For example, Seeking Alpha reports that analysts are now projecting Q3 revenue of $9.01 billion for Q3 (ending July 28, 2026). That will be 23% higher than last year's $7.3 billion revenue.

Moreover, last year the company generated $2.05 billion in FCF, representing 28.07% of its revenue, according to Stock Analysis. So, if Applied Materials were to generate 28% of $9.01 billion in Q3 2026, FCF could exceed $2.52 billion.

If that occurs, don't expect AMAT stock to keep falling. In fact, as long as AMAT achieves at least a 20.35% margin over its trailing 12 months (TTM), which was its TTM FCF margin last year, the stock could stabilize (Stock Analysis data). Last quarter, the TTM figure was slightly lower at 18.41%.