Lam Research Inc. (LRCX) stock has been on a tear, but that has also raised LTCX put option premiums. An investor can short an out-of-the-money put (17% lower strike price) for a 6% yield over 2 months.
LRCX rose over 5.2% on Monday, June 22, closing at $409.54. Moreover, in the last two weeks, since June 5, the stock is up 35% from a recent trough of $303.28.
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LRCX stock - last 3 months - Barchart - June 21, 2026 I discussed Lam Research's underlying value in a June 16 Barchart article, “Unusual Put Options Activity in Lam Research Stock Highlights Its Value.”
I showed that LRCX could be worth at least $478 per share, based on its strong free cash flow (FCF). That is still 16.7% higher, even after Monday's rise.
This was based on FY 27 revenue estimates (for the year ending June 30, 2027) of $30.54 billion, a 25% FCF margin, and a FCF yield of almost 1.3% (1.288%). Here is how that works:
$30.54b x 0.25 = $7.635 billion FCF
$7.635b / 0.01288 = $591.9 billion fair market value (FMV)
Since then, analysts have raised their revenue forecast to $30.6 billion, so the new FMV result will be slightly higher:
$30.6 x 0.25 = $7.65 billion FCF
$7.65b / 0.01288 = $593.94 billion FMV
Price Targets for LRCX Stock
That is +16.0% higher than its present $512.16 billion market cap, as of June 21. In other words, LRCX's price target (PT) is 16% higher:
$409.54 price on June 21 x 1.16 = $475.07 per share
The bottom line is that LRCX stock could still move higher. Moreover, if the market decides to raise the valuation metric to say 1.25%, the FMV would be $100 billion from its existing $512b market value:
$7.65b / 0.0125 = $612 billion
That $100 increase represents a 19.53% potential upside in LRCX stock to almost $490 per share:
$409.54 price x 1.1953 = $489.52 price target (PT)
Other analysts are playing catch-up, although they are raising their PTs. For example, Yahoo! Finance says the average of 35 analysts is $335.74. That's up from $323.38 a week ago, as seen in my June 16 Barchart article. Similarly, Barchart's PT is now $336.63, up from $325.60. I suspect Wall Street analysts will keep playing catch-up, as LRCX rises.
However, there is no guarantee this will occur. One way to play LRCX is to sell short deep out-of-the-money (OTM) puts, given their high premiums.
Shorting LRCX Puts at Deep Out-of-the-Money (OTM) Strike Prices
As I discussed in my last article, the Aug. 21 expiry shows that much lower put option premiums are very high. For example, the $340.00 put option strike price, which is almost 17% below today's price, still has a high midpoint premium of $20.85 per contract.
LRCX puts expiring Aug. 21 (60 days to expiry) - Barchart - As of June 21, 2026 That means an investor who sells short this put contract earns an immediate yield of 6.13% for the next 60 days:
$20.85 / $340.00
Here is how that works. The investor first posts $34,000 in cash or buying power with a brokerage firm. Then, the investor can enter an order to “Sell to Open” 1 put at the $340.00 strike price expiring Aug. 21.
This means that enough collateral has been posted to buy 100 shares at $340.00, should LRCX drop 17% to $340.00 anytime in the next 60 days to Aug. 21.
Then, the account will immediately receive $2,085 in cash. As a result, the net breakeven point, even if LRCX drops to $340.00 (i.e., down 17%), is:
$34,000 - $2,085 = $31,915, i.e., $319.15 per share
That would be 22% below today's price. There is very little chance that it will happen. For one, the delta ratio is -0.2272, implying less than a 23% probability that LRCX will drop to $340.00 by Aug. 21.
Moreover, if an investor can repeat this trade for the next 3 months, the expected return is over 18%:
6.13% short-put yield x 3 = 18.39%.
That is nearly equal to the 16% expected return from my $475 price target above. It's also almost equal to the 19.53% higher PT of $489.52.
So, you can see this as an attractive alternative play for value investors in LRCX stock.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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