Applied Materials (NASDAQ: AMAT) closed at $17.93 Friday.

AMAT is scheduled to report Q1 EPS after the market close on February 12.

Deutsche Banc says: "Expecting stronger F1Q08 results, weaker outlook." DBAB has a Hold rating and a $19 price target on AMAT.

AMAT February straddle 18 is priced at $1.10. AMAT March option implied volatility of 42 is above its 26-week average of 36 according to Track Data, suggesting larger movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY: Sonus Networks, Kenexa, Canadian Pacific, Applied Materials and Powerwave Tech were today's noteworthy upgrades:

• Merriman upgraded Sonus Networks (NASDAQ: SONS) to Neutral from Sell following its win at BT Group (NYSE: BT) for its ASX platform, which the firm believes endorses the company's technology.
  
• Cantor upgraded Kenexa (NASDAQ: KNXA) to Buy from Hold. The firm finds the stock being 40%+ off due to the 3Q weak earnings report as quite an overreaction and believes there is more than enough upside to advise buying shares. Management announced a 2M share buyback program.
  
• Shares of Canadian Pacific (NYSE: CP) was upgraded to Sector Outperformer from Sector Performer at CIBC, as they believe the strong Canadian Dollar and the delay in STB approval of the DM&E acquisition is priced into shares.
  
• Applied Materials (NASDAQ: AMAT) was upgraded to Outperform from Neutral at JP Morgan and to Buy from Hold at Citigroup; Citigroup expects capex revisions to start to reverse in mid-08 and views solar as a free option.
  
• Piper Jaffray raised its rating on Powerwave Technologies (NASDAQ: PWAV) to Outperform from Market Perform on valuation and seasonally strong Q4 capex trends.

OTHER UPGRADES:

• eBay (NASDAQ: EBAY) was upgraded to Outperform from Market Perform at Piper Jaffray.
  
• Morgan Joseph upgraded Perini (NYSE: PCR) to Buy from Hold and Shuffle Master (SHFL) to Hold from Sell.
  
• Goldman upgraded China Petroleum & Chemical Corp (NYSE: SNP) to Buy from Neutral.

Applied Materials Inc. (NASDAQ: AMAT) is higher this morning after the Semiconductor Industry Association announced today that global semiconductor sales rose 2.2% in July. The company also introduced a new line of solar energy modules over the weekend. If you think this means that AMAT won't slip too much in the coming months, then now could be a good time to look at a bullish hedged trade on the stock.

After hitting a one-year high of $23.00 in early August, shares fell sharply back to previous support levels just above $20. AMAT opened this morning at $21.49. So far today the stock has hit a low of $21.40 and a high of $21.92. As of 11:25, AMAT is trading at $21.91, up $0.55 (2.6%). The chart for AMAT looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.1% return in just 7 weeks as long as AMAT is above $20 at October expiration. Applied Materials would have to fall by more than 8% before we would start to lose money.

AMAT hasn't been below $20 by more than a few cents since early June and has shown support around $20.50 recently. This trade could be risky if the tech market turns bearish, but even if that happens, this position could be protected by its 200 day moving average, which is around $19 and rising. Plus, AMAT is not scheduled to report earnings again until November, which is after expiration.

Brent Archer is an options analyst and writer at Investors Observer.

This morning, Novellus Systems Inc (NASDAQ: NVLS) announced that it anticipates second quarter bookings, shipments, revenues and earnings per share to come in at the low end of the guidance range it previously provided on May 31st. The semiconductor equipment maker previously forecast Q2 results of 42c-45c/$410M-$420M vs. Reuters consensus of 44c/$415.61M.

The company, which makes equipment to help turn silicon wafers into computer chips, believes its earnings will be lower because of a weak semiconductor market. Novellus said theses industry declines will lead to cost cutting initiatives in the second half of the year, including a reduction in executive salaries for the rest of the year and company shutdowns in the third and fourth quarters.

Novellus is one company among several that have lowered expectations for the rest of the year. Due to a surplus in chips, companies have had to cut prices. Applied Materials Inc (NASDAQ: AMAT), for example, also predicts declines in global chip sales growth for the rest of 2007.

In the technology sector this morning, the profit warning from Novellus was offset by an upgrade of Intel Corporation (NASDAQ: INTC) by Lehman Brothers.

MOST NOTEWORTHY: Limited Brands, Inc (LTD), Applied Materials, Inc (AMAT), Williams-Sonoma, Inc (WSM) and Texas Instruments Inc (TXN) were some of today's noteworthy downgrades:

• Limited Brands Inc (NYSE: LTD) was downgraded to Neutral from Buy at Banc of America, to Neutral from Accumulate at Buckingham, to Hold from Buy at Citigroup and to Market Perform from Outperform at Wachovia following the news of selling a majority interest in its Express brand and announcing the intent to explore strategic options for the company.

• Elsewhere, Cowen downgraded shares of Applied Materials (NASDAQ: AMAT) to Neutral from Outperform due to Q3 order guidance and limited visibility. American Technology removed Applied Materials from its Focus List.

• Williams-Sonoma (NYSE: WSM) was cut to Market Perform from Outperform at Piper Jaffray on concerns about mall traffic trends at the end of Q1 for both Pottery Barn and Williams-Sonoma brands.

• Texas Instruments (NYSE: TXN) was cut to Sector Performer from Outperformer at CIBC on valuation...

OTHER DOWNGRADES:

• Merriman downgraded Lam Research Corp (NASDAQ: LRCX) to Neutral from Buy.

• UBS cut Air France-KLM (NYSE: AKH) to Neutral from Buy.

• ThinkEquity downgraded Jazz Technologies, Inc (AMEX: JAZ) to Source of Funds from Buy.

• Nordstrom, Inc (NYSE: JWN) was taken down to Market Weight from Overweight at Thomas Wiesel.

• Longbow downgraded Ingersoll-Rand Co Ltd (NYSE: IR) to Neutral from Buy on valuation.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Three food companies, TiVo Inc (TIVO), Circuit City Stores, Inc (CC) and AutoZone, Inc (AZO) were today's most noteworthy downgrades:

• Deutsche Bank downgraded Groupe Danone (NYSE: DA), Unilever (NYSE: UL) and Nestle (OTC: NSRGY) to Hold from Buy as the firm believes the three food producers will suffer from rising prices for agricultural commodities.

• SMH Capital downgraded shares of TiVo (NASDAQ: TIVO) to Sell from Hold on valuation as the firm believes the market has already priced in considerable penetration of the new TIVO/Comcast bundled DVR into Comcast's (CMCSK) core digital sub base.

• Matrix downgraded Circuit City Stores (NYSE: CC) to Strong Sell from Hold as the firm believes increasing competition is leading to lower selling prices and decreasing profits.

• BMO Capital cut AutoZone (NYSE: AZO) to Underperform from Market Perform on expectations that higher gas prices will be a drag on discretionary product sales...

OTHER DOWNGRADES:

• Goldman added Applied Materials, Inc (NASDAQ: AMAT) to its Americas Conviction Sell List.

• Oppenheimer downgraded Federated Department Stores (NYSE: FD) to Neutral from Buy.

• STEC, Inc (NASDAQ: STEC) was cut to Neutral from Buy at Merrill Lynch and to Sector Perform from Outperform at CIBC after weak Q1 results.

• Boyd Gaming Corp (NYSE: BYD) was cut to Market Perform from Outperform at BMO Capital.

• Baird downgraded Amgen, Inc (NASDAQ: AMGN) to Neutral from Outperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Applied Materials Inc (NASDAQ: AMAT) was upgraded this morning to Buy from Neutral with a $25 price target by Bank of America. Solar powered semiconductors were cited as a reason for the upgrade.

We blogged last weak about the merits of going green and the demand for solar powered semiconductors that are being produced by SunPower Corporation (NASDAQ: SPWR). Although mentioned during Applied's February conference call as a source of growth, management was hesitant to quantify revenue from the solar business. It appears from BOFA's report this morning, Applied Materials is beginning to provide some size and scope to this business, indicating solar contracts in fiscal year 2007 could be in the $400M-$500M range, above original guidance of $200M.

Add the rapid growth of NAND memory products, or Flash, and strong demand for dual-core microprocessors and it appears Applied Materials is set to break out of its tight trading range.

In its February call, equipment orders were guided to be up 2% to 7%, as Michael Splinter, Applied's CEO, said logic, foundry and display businesses should be bottoming during the next few quarters. 90% of orders are 300 millimeter as semiconductor equipment buyers continue to push toward using newer technologies.

Applied Materials has huge share buyback in place and dividend increases are also coming. Applied Materials is a very powerful company in a very important industry. I believe it is time to own this stock.

MOST NOTEWORTHY: BHP Billiton (BHP), Applied Materials, Inc (AMAT), Advanced Micro Devices (AMD) and Oracle Corp (ORCL) were some of today's noteworthy upgrades:

• Prudential upgraded shares of BHP Billiton (NYSE: BHP) to Neutral from Underweight with a $50 target to reflect capacity expansion in uranium mining and increasing demand for iron ore from China.
• Bank of America upgraded Applied Materials Inc (NASDAQ: AMAT) to Buy from Neutral with a $25 target as the firm believes the company's solar power equipment market is accelerating faster than estimates and guidance.
• Advanced Micro Devices Inc (NYSE: AMD) was upgraded to Neutral from Reduce at UBS citing limited downside to the shares.
• Oracle Corp (NASDAQ: ORCL) was upgraded to Buy from Neutral at Goldman Sachs, where its coverage was transferred to another analyst.

OTHER UPGRADES:

• Credit Suisse added Rite Aid Corp (NYSE: RAD) to its U.S. Focus List.
• Morgan Stanley upgraded O2Micro International Ltd (NADAQ: OIIM) to Overweight from Equal-Weight based on the company's announcement of a settlement with Samsung.
• Wachovia added Lehman Brothers Holdings (NYSE: LEH) to its Focus List. Due to Lehman's record banking fee backlog of $1.03 billion in Q1, the firm believes their banking estimate is "quite conservative."
• Continental Airlines, Inc (NYSE: CAL) was upgraded to Buy from Neutral at FTN Midwest citing the surprisingly strong March unit revenue growth for the upgrade.
• Bear Stearns upgraded Vodafone PLC (NYSE: VOD) to Peer Perform from Underperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Applied Materials Inc. (NASDAQ:AMAT), the semiconductor equipment powerhouse, appeared to show signs that the semiconductor equipment market is close to bottoming during its conference call Tuesday night. Equipment orders were guided to be up 2-7%, a good sign for the industry. AMAT shares gained 70 cents to close $18.89 today, up 3.85%.

Michael Splinter, AMAT's CEO said the logic, foundry and display businesses should be bottoming during the next few quarters. Splinter sees strong memory purchases, as about 20 memory fabs are due to be constructed to meet the growing demand for new products, such as NAND, which are being used more often as a substitute for disk drives.

What is becoming more and more clear while listening to AMAT's conference calls and meetings with the investment community is just how powerful this company is: 90% of orders are 300-millimeter, as semiconductor equipment buyers continue to push toward using newer technologies. This allows AMAT to build a bigger and bigger moat to fend-off competition.

AMAT generated free cash flow of $322 million, which is at the lower end of its free-cash-flow generation cycle. AMAT expects free cash flow generation to move higher from here. The stock buyback is huge and dividend increases are also coming. AMAT is a very powerful company in a very important industry. Moreover, AMAT is making the case that it is time to start chipping away at this company, from an investment standpoint.

MOST NOTEWORTHY: FedEx Corp (FDX) and Applied Materials Inc (AMAT) were today's notable upgrades:

• Morgan Keegan upgraded FedEx Corp (NYSE: FDX) to Outperform from Market Perform. The firm said recent data indicates that the company's core business segments are well-positioned for operational improvements given current initiative; data also indicates that we may have reached a bottom in the economy and can potentially expect a soft landing.

• Applied Materials Inc (NASDAQ: AMAT) was upgraded to Buy from Hold with a $25 target at First Albany and Stanford, as they believe the company's memory cycle is better than investors may think.

OTHER UPGRADES:

• Coca-Cola Enterprises Inc (NYSE: CCE) was upgraded to Market Perform from Underperform at Bernstein because the firm no longer sees any major negative catalysts ahead.

• Apria Healthcare Group Inc (NYSE: AHG) was upgraded to Hold from Sell with a $30 target at Deutsche Bank. The firm said Apria reported a solid fourth quarter and near-term momentum was more clear.

• JP Morgan upgraded King Pharmaceuticals inc (NYSE: KG) to Neutral from Underweight on valuation and the potential of a prolonged delay of generic Skelazin.

• Citigroup upgraded Ciena Inc (NASDAQ: CIEN) to Buy from Hold, but still considers JDS Uniphase Corp (NASDAQ: JDSU) their top pick for capacity exposure.

• Jefferies raised Applebee's Int'l Inc (NASDAQ: APPB) to Hold from Underperform to reflect the company's decision to seek strategic alternatives.

• Prudential upgraded Nasdaq Stock Market Inc (NASDAQ: NDAQ) to Neutral from Underweight with a $30 target.

• JMP Securities upgraded KB Home (NYSE: KBH) to Outperform from Market Perform with a $60 target.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Note: The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Volatility Index S&P 500 Options-VIX up 1.17 to 10.44.

Applied Materials Inc.-(NASDAQ:AMAT) option prices suggests risk levels below average into EPS.

Applied Materials is expected to report EPS of .27 cents tonight after the close. Stifel Nicolaus has a buy rating with a $23 price target on Applied Materials. AMAT February straddle is priced at .85 above its theoretical value of .47 cents. Applied Materials March option implied volatility of 32 is near its 26-week average of 30 according to Track Data, suggesting larger price fluctuations.

Nvidia Corporation -(NASDAQ:NVDA) option prices suggests risk levels are flat into EPS & Outlook

Nvidia, a designer, developer and marketer of graphic processing units, is expected to report EPS of .42 cents tonight. American Technology Research says "Nvidia is very well positioned entering in 2007 given its favorable exposure to the PC segment entering a large upgrade cycle, favorable exposure to the gaming segment with PS3 ready to ship high volume, and increasing share in the consumer mobile segment." Nvidia February straddle is priced at $2.15, above its theoretical value of 41.49. NVDA March option implied volatility of 45 is near its 26-week average according to Track Data, suggesting reduced risk levels after EPS.

Option volume leaders today were: Alcoa (NYSE:AA), Nasdaq (NASDAQ:NDAQ), AK Steel (NYSE:AKS), RadioShack Corp. (NYSE:RSH), Intel (NASDAQ:INTC) and Onyx Pharma (NASDAQ:ONXX).

MOST NOTEWORTHY: Applied Materials (AMAT) and Marvel Entertainment (MVL) were the most notable companies initiated today:

• Citing an unattractive valuation, Nollenberger initiated Applied Materials (NASDAQ: AMAT) with a Neutral rating.

• Susquehanna initiated Marvel Entertainment (NYSE: MVL) with a Positive rating, expecting strong earnings momentum for the foreseeable future driven by the success of licensed properties and the release of feature films.

OTHER INITIATIONS:

• Rochdale Research initiated shares of Callaway Golf (NYSE: ELY) with a Neutral rating and $12.50 target, citing valuation

• Prudential initiated MGIC Investment (NYSE: MTG) with an Underweight rating and $65 target; as they prefer business models that are less reliant on the U.S. mortgage insurance, the firm sees an unfavorable risk/reward.

• Merriman initiated TheStreet.com Inc (NASDAQ: TSCM) with a Buy rating. Merriman said TheStreet.com is transitioning to a Media Business model leveraging unique content assets and high organic user traffic. The firm likes the company's strategy to increase its mass market appeal towards the retail and professional investors.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

U.S. stocks rallied as investors ignored higher interest rates as oil closed below $54 a barrel. Crude oil closed down 3.59% to $53.64. The Dow was up 0.20%, the NASDAQ 100 was up 0.60%, the S&P 500 was up 0.18%, and the 10 year bond rose to 4.682%. The Volatility Index S&P 500 Options-VIX was down .31 to 11.60.

• US Airways Group Inc.' (NYSE: LCC) option implied volatility is at 49 into US Air raising its bid for Delta Air Lines (OTC: DALRQ). US Airways increased its proposed offer of merging with Delta, which is currently operating under bankruptcy protection. US Airways is offering $5 billion in cash and 89.5 million in shares of stock. US AIrways is recently up 1.26 to $59.16. US Airways overall option implied volatility of 49 is near its 26-week average, according to Track Data, suggesting non-directional risks.
• Las Vegas Sands Corp.' (NYSE: LVS) option volume, implied volatility and share price are all up on the right to develop Hengqin Island. Las Vegas Sands, the operator of the Sands Macau and Las Vegas Sands, is recently up $10.22 to $102.68. Jefferies said "after speaking with management today we learned that Las Vegas Sands was officially granted the right to develop on Hengqin Island, as we expected." Jefferies added "we currently value the project at $34 from the real estate development to be built over the course of 11 years." Las Vegas Sands call option volume of 20,530 contracts compares to put volume of 14,794 contracts. Las Vegas Sands February option implied volatility of 44 is near its 26-week average of 41, according to Track Data, suggesting larger price fluctuations.
  

Option volume leaders today were: Applied Materials Inc. (NASDAQ: AMAT), Research In Motion Ltd. (NASDAQ: RIMM), Apple Inc (NASDAQ:AAPL), and Advanced Micro Devices Inc. (NYSE: AMD).

Options analysis provided by Paul Foster, options strategist for Theflyonthewall.com.

MOST NOTEWORTHY: The Semiconductor Production Equipment sector, General Motors (NYSE: GM) and Advanced Micro (NYSE: AMD) topped the massive list of downgrades this morning.

• Goldman Sachs downgraded the Semiconductor Production Equipment sector to Cautious from Neutral, citing expectations for weakness in NAND and DRAM in 2007; the firm also downgraded Advanced Micro Devices (NYSE: AMD), Applied Materials (NASDAQ: AMAT) and Credence Systems (NASDAQ: CMOS) to Sell from Neutral.

• General Motors (NYSE: GM) was downgraded to Sell from Neutral at Bank of America, telling clients it expects market share for the first-half of 2007 to be lower, along with a sharp fourth-quarter decline in new product volume due to overpricing.

• ThinkEquity also downgraded Advanced Micro Devices (NYSE: AMD) to Sell from Buy with a $15 target, as they believe inventory in the channel is building and prices are falling; furthermore, the broker believes Advanced Micro has little opportunity of meeting the high expectations for margins it set on its recent analyst day.

OTHER DOWNGRADES:

• Amazon.com Inc (NASDAQ: AMZN) was downgraded to Sell from Hold with a $34 target at Citigroup citing valuation that reflects aggressive long-term operating margins.

• Wachovia downgraded shares of Cox Radio 'A' (NYSE: CXR) to Underperform from Market Perform and recommended investors to swap out of Cox and into their top 2007 picks: Lamar Advertising 'A' (NASDAQ: LAMR) or Entravision Communication 'A' (NYSE: EVC).

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Wyeth (WYE) and Motorola (MOT) top today's modest-sized list of upgrades.

• Wyeth (NYSE:WYE) was upgraded to Outperform from Market Perform by Leerink Swann. The firm cited near-term positives including low Medicare legislation exposure, double digit earnings growth and the Alzheimer's program with Elan Corp (ELN) for the upgrade.
• Motorola, Inc. (NYSE:MOT) was added to Matrix USA's Focus List citing significantly undervalued shares.

OTHER UPGRADES:

• Applied Materials (NASDAQ:AMAT) was upgraded to Hold from Sell at Stanford Capital based on the lack of negative catalysts.
• DreamWorks Animation (NYSE:DWA) was upgraded to Neutral from Sell at Pali Capital. The firm said the last major negative near-term catalyst was removed with the secondary offering last night, but they continue to find the shares overvalued.
• Seagate Technology (NYSE:STX) was upgraded to Outperform from Underperform at Raymond James.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).