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New Position - NVLS

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NVLS - Novellus Systems $27.51

Novellus Systems (NASDAQ:NVLS) is a supplier of semiconductor manufacturing equipment used in the fabrication of integrated circuits. The company is focused on delivering interconnect products and technologies that meet the increasingly complex and demanding needs of semiconductor manufacturers. Novellus makes chemical vapor deposition, physical vapor deposition, copper Electrofill, photoresist and residue removal, and chemical mechanical planarization systems. The company has developed concepts that have improved the quality of deposited films while increasing system throughput and continuously reducing costs of ownership.

Shares of NVLS fell sharply Friday, dropping nearly 4% amid a broad retreat in the technology segment. The move was slow and steady throughout the session with only moderate trading volume, however it appears the issue is comfortably back in the middle of a previous trading range between $25-$30. In addition, the sector fundamentals are less than outstanding and analysts have been uncharacteristically restrained in their forecasts for chip-equipment makers due to expected mediocre demand in the latter half of the year.

Our analysis suggests the underlying issue will likely remain in a lateral pattern during the next few weeks and with overhead supply near the sold (call) strike at $30, the risk-reward outlook for this spread is favorable. Since the collateral requirement is relatively small (and the liquidity in both series is more than adequate) we are going to recommend 10 contracts for this position.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (less conservative - bearish/credit spread):

BUY CALL APR-32.50 NLQ-DZ OI=512 ASK=$0.15
SELL CALL APR-30.00 NLQ-DF OI=1532 BID=$0.40

INITIAL "NET-CREDIT" TARGET = $0.30-$0.35
POTENTIAL PROFIT (X 10 contracts) = $300
RETURN ON INVESTMENT (max) = 14%
COST BASIS = $30.30
LOSS-LIMIT/EXIT POINT = $29.50 (cons) - $30.75 (aggr)

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