Lam Research Plunges 4% Amid Regulatory Fears and Sector Turbulence: What’s Driving the Selloff?

Summary
• Lam Research (LRCX) trades at $161.91, down 4.03% from its previous close of $168.71
• Intraday range spans $160.09 to $167.80, with turnover hitting 4.37 million shares
• Sector peers like Applied Materials (AMAT) also underperform, down 3.14%

Today’s sharp selloff in Lam Research has sent shockwaves through the semiconductor equipment sector, driven by a confluence of regulatory concerns, sector-wide volatility, and shifting investor sentiment. With the stock trading near its 52-week low of $56.32 and a dynamic P/E of 32.4x, the move reflects growing unease over geopolitical risks and supply chain uncertainties. The intraday decline has triggered a reevaluation of long-term positioning in the sector, particularly as Intel’s recent testing of tools from a China-linked firm has reignited debates over national security and supply chain integrity.

Regulatory Scrutiny and Sector Volatility Spark LRCX Sell-Off
The selloff in Lam Research is directly tied to escalating regulatory and geopolitical tensions in the semiconductor sector. Recent news of Intel testing chipmaking tools from ACM Research—a firm with sanctioned units in China—has raised alarms among policymakers and investors. China hawks warn that such moves could compromise U.S. technological leadership and expose sensitive manufacturing processes to foreign manipulation. While ACM denies national security risks, the incident has amplified fears of supply chain vulnerabilities, triggering a sector-wide risk-off trade. Lam Research, as a key player in advanced wafer fabrication equipment, is particularly exposed to these concerns, leading to aggressive profit-taking and short-term bearish positioning.

Semiconductor Equipment Sector Under Pressure as AMAT Follows LRCX's Lead
The semiconductor equipment sector is broadly underperforming, with Applied Materials (AMAT) down 3.14% alongside Lam Research’s 4.03% decline. Both companies are critical suppliers to the global chipmaking ecosystem, and their synchronized selloff underscores sector-wide anxiety over regulatory headwinds and slowing demand. The sector’s beta of 1.77 (for LRCX) highlights its sensitivity to macroeconomic shifts and geopolitical risks. While Lam Research’s 52-week high of $169.69 remains intact, the broader sector’s struggles—exacerbated by Intel’s recent actions—suggest a near-term correction is likely.

Navigating Volatility: Options and ETF Strategies for LRCX
• 200-day average: $105.99 (far below current price)
• RSI: 89.5 (overbought, suggesting potential reversal)
• MACD: 4.36 (bullish trend), Signal Line: 2.98, Histogram: 1.38 (positive divergence)
• Bollinger Bands: Upper $171.03, Middle $154.54, Lower $138.06 (price near lower band)

Lam Research’s technicals suggest a short-term bearish bias despite a long-term bullish trend. Key support levels at $154.54 (middle Bollinger Band) and $138.06 (lower band) are critical to watch. The RSI’s overbought reading and MACD’s positive divergence hint at a potential pullback. For options traders, the high implied volatility (IV) and liquidity in the options chain present opportunities for bearish plays. Two top options from the provided chain stand out:

• LRCX20251219P155 (Put, Strike $155, Expiry 12/19):
- IV: 50.80% (moderate)
- Leverage Ratio: 83.21% (high)
- Delta: -0.2558 (moderate sensitivity)
- Theta: -0.0580 (slow time decay)
- Gamma: 0.0264 (moderate sensitivity to price changes)
- Turnover: 21,345 (high liquidity)
- Payoff (5% downside): $6.96 per contract (max(0, 155 - 153.81))
This put option offers a high leverage ratio and strong gamma, making it ideal for capitalizing on a near-term decline. The moderate IV and high turnover ensure liquidity for entry and exit.

• LRCX20251219P157.5 (Put, Strike $157.5, Expiry 12/19):
- IV: 50.41% (moderate)
- Leverage Ratio: 59.87% (high)
- Delta: -0.3276 (moderate sensitivity)
- Theta: -0.0323 (slow time decay)
- Gamma: 0.0298 (moderate sensitivity to price changes)
- Turnover: 4,556 (high liquidity)
- Payoff (5% downside): $5.69 per contract (max(0, 157.5 - 153.81))
This contract balances leverage and liquidity, with a slightly higher delta for more aggressive bearish exposure. The moderate IV and high gamma make it a strong candidate for a controlled downside bet.

Trading Setup: Aggressive bears should prioritize LRCX20251219P155 for a near-term decline, while LRCX20251219P157.5 offers a slightly more conservative approach. Both contracts benefit from high leverage and liquidity, aligning with the sector’s volatile environment. If $154.54 breaks, consider scaling into additional puts.

Backtest Lam Research Stock Performance
The backtest of LRCX's performance after a -4% intraday plunge from 2022 to the present reveals positive short-to-medium-term gains. The 3-Day win rate is 55.70%, the 10-Day win rate is also 55.70%, and the 30-Day win rate is 62.03%. This indicates that following a significant intraday dip, LRCX tends to rebound over the next few weeks. The maximum return during the backtest was 8.69% over 30 days, suggesting that while there may be some volatility, LRCX can offer decent returns in the period immediately following a substantial downturn.

Act Now: Position for LRCX's Volatile Outlook
Lam Research’s 4% selloff reflects a perfect storm of regulatory fears, sector-wide volatility, and shifting investor sentiment. While the stock remains above its 200-day average and within its long-term bullish trend, the immediate outlook is bearish, with key support levels at $154.54 and $138.06 critical to monitor. The sector’s struggles—exemplified by Applied Materials’ 3.14% decline—underscore the need for caution. Investors should prioritize short-term bearish options like LRCX20251219P155 and LRCX20251219P157.5 to capitalize on near-term weakness. Watch for regulatory developments and Intel’s next moves; a sustained break below $154.54 could trigger further selling. Act now to secure downside protection or aggressive bearish exposure.