Chip stocks continue to surge. Here's how to buy one for less

Fear is a powerful emotion. Fear of missing out might even be more potent. Case in point: the rally in chips. The immediate impulse might be to jump in. If you're in that camp, a more measured approach might be to use options and risk less capital. Chipmaker Applied Materials offers an interesting opportunity. The company reports earnings on Thursday. For investors looking to express a bullish view while avoiding the capital commitment and downside exposure of outright equity ownership, the June 400/480 in-the-money call spread offers an attractive alternative to long stock. By purchasing the "in-the-money" June 400 call, which is well below Friday's closing price of $435.44, and simultaneously selling the "out-of-the-money" June 480 call against it, the resulting spread contains little "extrinsic" premium, meaning the position behaves similarly to stock, offers clearly defined risk, and has little or no "theta" or decay over time. The call spread participates in roughly a 10% move higher (or lower) in the underlying shares, with risk limited to the net debit paid for the spread, or about $35.50 as of Friday's closing prices. This reduces the substantial downside associated with owning 100 shares of the stock outright and, compared to purchasing shares directly, the trade also requires materially less capital while still maintaining strong directional exposure. …