Lam Research Plunges 6.86% Amid Sector Turbulence: What’s Fueling the Selloff?

Summary
• Lam Research (LRCX) tumbles 6.86% to $100.01, breaking below its 50-day moving average of $97.24
• Intraday range spans $99.42 to $105.885, signaling sharp volatility
• Applied Materials (AMAT), a sector leader, slumps 13.5% on macroeconomic uncertainty

Lam Research’s dramatic intraday selloff has drawn urgent attention from traders and analysts. The stock’s collapse to $100.01—a 6.86% drop from its previous close—coincides with broader semiconductor equipment sector jitters. With Applied Materials (AMAT) also reeling from a 13.5% decline, the sector’s fragility is laid bare. This article dissects the catalysts, technical signals, and strategic options to navigate the unfolding volatility.

Macro Uncertainty and China Demand Concerns Trigger Selloff
The selloff in Lam Research and its sector peers stems from a confluence of macroeconomic and geopolitical pressures. Applied Materials’ recent earnings warning highlighted waning demand in China, a critical market for semiconductor equipment. The company cited 'capacity digestion' and 'non-linear demand' from leading-edge customers, signaling a slowdown in capital expenditures. Lam Research, despite strong Q2 earnings (beating EPS by $0.12), faces similar headwinds as global chipmakers recalibrate for a potential industry correction. The U.S.-China trade tensions, including Trump’s proposed 100% tariffs on semiconductors, further amplify uncertainty, triggering profit-taking and risk-off sentiment.

Semiconductor Equipment Sector Under Pressure as Applied Materials Slides 13.5%
The semiconductor equipment sector is experiencing synchronized weakness, with Applied Materials (AMAT) leading the decline. AMAT’s 13.5% drop reflects broader concerns about China’s slowing demand and U.S. export controls. Lam Research’s 6.86% intraday loss aligns with this trend, as both firms rely heavily on Chinese and global chip manufacturing. While Lam’s Q2 revenue grew 33.6% year-over-year, the sector’s near-term outlook is clouded by overcapacity fears and geopolitical risks. This synchronized selloff underscores the sector’s vulnerability to macroeconomic shifts.

Options Volatility Soars: Strategic Plays for Navigating the Downturn
• RSI: 71.84 (overbought, but bearish reversal likely)
• MACD: 2.29 (above signal line 1.48, but histogram peaks)
• Bollinger Bands: Price at $100.01 near lower band ($92.57–$106.74)
• 200D MA: $81.38 (far below current price, suggesting oversold potential)

Lam Research’s technicals paint a bearish near-term picture. The RSI at 71.84 suggests overbought conditions, while the MACD histogram’s peak indicates waning momentum. Bollinger Bands show the stock near the lower boundary, hinting at a potential bounce. Traders should focus on key support/resistance levels: the 30D support at $99.61 and 200D support at $77.44. The sector’s volatility, driven by AMAT’s 13.5% drop, amplifies the case for short-term bearish options.

Top Options Picks:
• LRCX20250822P96 (Put):
- Strike: $96, Expiry: 2025-08-22
- IV: 37.32% (moderate), Leverage: 151.85%, Delta: -0.206, Theta: -0.0067, Gamma: 0.0515, Turnover: 15,818
- IV (Implied Volatility): Reflects market’s expectation of price swings
- Leverage (Leverage Ratio): Amplifies returns on directional bets
- Delta (-0.206): Sensitive to moderate price moves
- Gamma (0.0515): High sensitivity to price acceleration
- Turnover (15,818): Strong liquidity for entry/exit
- This put option offers a 5% downside scenario payoff of $0.99 (ST = $95.01), with high leverage and liquidity to capitalize on a potential break below $96.

• LRCX20250822C102 (Call):
- Strike: $102, Expiry: 2025-08-22
- IV: 32.04% (reasonable), Leverage: 84.93%, Delta: 0.370, Theta: -0.2645, Gamma: 0.0794, Turnover: 112,955
- IV (32.04%): Balanced volatility for directional plays
- Leverage (84.93%): Amplifies gains if price rebounds
- Delta (0.370): Moderately sensitive to price swings
- Theta (-0.2645): High time decay, favoring quick moves
- Turnover (112,955): Deep liquidity for execution
- This call option offers a 5% downside scenario payoff of $0 (ST = $95.01), but its high gamma and liquidity make it ideal for a short-term bounce trade if the stock rebounds above $102.

Trading Outlook: Aggressive bears should prioritize LRCX20250822P96 for a breakdown below $96, while cautious bulls may test LRCX20250822C102 for a rebound above $102. Watch for a break of the 30D support at $99.61 to confirm the bearish bias.

Backtest Lam Research Stock Performance
The backtest of LRCX's performance after an intraday plunge of -7% shows favorable short-to-medium-term gains. The 3-Day win rate is 55.33%, the 10-Day win rate is 56.35%, and the 30-Day win rate is 60.91%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 8.12%, which occurred on day 59, suggesting that the stock price had a strong recovery capacity.

Urgent Action Needed as LRCX Tests Key Support Levels
Lam Research’s 6.86% intraday selloff reflects a critical juncture for the stock and its sector. The technicals and options data suggest a high probability of continued weakness, with the 30D support at $99.61 and 200D support at $77.44 as pivotal levels. The sector’s fragility, exemplified by Applied Materials’ 13.5% drop, underscores the need for immediate action. Traders should prioritize short-term bearish options like LRCX20250822P96 to capitalize on the breakdown, while monitoring for a potential rebound above $102. Watch for $96 breakdown or sector-wide policy shifts to dictate next steps.