Earnings and Options Strategy | Believe in 'Light'? LITE's earnings release is imminent; can AI-driven demand propel the need for optical components once again?

$Lumentum (LITE.US)$ will release a new round of earnings reports after the market closes on May 5 (Tuesday).Institutions expect Lumentum to achieve revenue of $810 million in Q3 2026, a year-on-year increase of 90.51%; expected earnings per share of $1.426, turning losses into profits year-on-year.

Let's look back at LITE’s stock price from the beginning of the year to now, which has basically maintained a strong upward trend, with an increase of over 140% for the year. The logic behind the rise comes from the following reasons:

1. Located in a high-growth track: AI training clusters (NVIDIA H100/H200/Blackwell) bandwidth demand10x growth, traditional copper cables have completely hit a bottleneck at 1.6T speed (signal attenuation, heating, distance limitations),optical interconnect becomes the only solution。

2. Earnings explosion leading to the realization of expectations: Last quarter (FY26 Q2) revenueUSD 665.5 million(+65.5%), a new all-time high; net profit increased over 300% year-over-year, with EPS at USD 1.67.The proportion of high-margin AI products (EML/OCS) increased, driving gross margin from 30% to over 42%, significantly higher than the industry average, showing strong profit elasticity.

3. Backing by industry giants: In March 2026, NVIDIA announceda strategic investment of USD 2 billion in LITE, along with reachingmulti-billion-dollar long-term procurement agreements, the certainty of future orders is extremely strong.

Therefore, this earnings release is particularly important as it will directly showcase the company's future business outlook and the direction of its stock price. Currently, LITE's business is mainly divided intothe optical devices/chip segment (Components, accounting for approximately 67% of revenue) and the systems/optical module segment (Systems, accounting for about 33% of revenue).The core products are primarily AI EML laser chips, cloud optical modules, and OCS optical switching systems.

AI EML Chips: The absolute leader, with both technology and market share in a leading position.

With the expansion of computing power and technological advancements, optical modules have become the core transmission carriers in AI computing networks. Among them, optical chips directly determine the transmission speed, power consumption levels, and supply chain stability of optical modules. Particularly, the 200G EML electro-absorption modulated laser chip has become the most scarce and rigid supply link in the current optical module industry chain due to its suitability for 800G/1.6T ultra-high-speed transmission. The imbalance between supply and demand continues to intensify.

In the global high-end EML chip market, Lumentum is the leader in 200G EML chips, with a market share of 45%-50%.(Next, Coherent holds a market share of approximately 15-20%), featuring top-tier monolithic integration processes and packaging yields, with a yield rate consistently above 90%.According to Citi estimates, this quarter LITE will continue its industry-leading position, maintaining a market share of nearly 50%,and raising its EML sales forecast for fiscal year 2026 by 7% to USD 907 million.

OCS/CPO: Technological iteration may become the second growth curve

OCS experienced explosive growth in the company's last quarter. As electrical switching still cannot meet the growing demand for AI computing clusters, optical interconnects via OCS have become the only solution. In the previous quarter, the company’s newly launched OCS optical switch business generated revenue exceeding $10 million, showing strong momentum.According to disclosures from the management during the last earnings call, OCS order backlogs exceed $400 million, primarily from the three major North American cloud vendors, representing non-cancellable long-term agreements rather than mere letters of intent.

In the cloud optical module business, last quarter's revenue increased by $50 million sequentially, reflecting the current stage of large-scale commercial deployment. With AI cluster bandwidth expected to rise further, the company is actively developing CPO co-packaged optics technology to meet future optical component demands, positioning itself at the forefront of the industry.Even though LITE’s gross margin after process improvements has reached 42%, Citi still expects that technological iteration will drive the gross margin to 50% by fiscal year 28.

Key focus of this earnings report: Whether revenue and profit forecasts can be realized

The high stock price of LITE is financially driven by two factors: 1) Strong demand on the business side, with a large number of orders ensuring predictable revenue; 2) Process improvements leading to the highest gross margin in the industry. The market currently bets on smooth order fulfillment and further margin expansion, meaning earnings per share (EPS) will directly reflect the stock performance.

Risk pointsIf orders cannot be delivered on time, or production capacity fails to grow further, or new technology development falls short of expectations, all will directly affect EPS performance. If EPS underperforms, it will negatively impact market expectations, potentially leading to a drop in share price.

Options Signal: How the Market Views It

Currently, the put-to-call ratio for LITE stands at 1.25, with more put positions held, indicatingThe market uses puts to

hedge against falling stock prices and protect positions. Before the earnings report, LITE's option implied volatility (IV) reached 108.95%, which is relatively high historically, reflecting the market's expectation of post-earnings volatility.

Based on past performance, out of the last eight earnings reports, there were three instances where post-earnings volatility exceeded the expectations priced into the options market.

Long-term supply shortages and a positive industry outlook; short-term concerns about earnings not meeting expectations or technical pullback risks may warrant the following strategies:

1. If you are long-term bullish on LITE and want to enter at a low cost,

you can wait for the IV crush after earnings when options prices are relatively cheap,and buy long-dated Calls to bet on an upward move,tracking the stock’s upside potential with lower costs than holding the shares directly.

2. If you seek short-term upside but worry about time decay,

Yes, it is possibleOpen a call option expiring in three months, then sell another call at a higher strike price to form a spread combination.The lower call tracks the upward movement of the stock price, while the higher call helps hedge against some time value decay.

3. If you hold the underlying stock long-term and are concerned about short-term volatility,

Yes, it is possibleopen a put position to buy 'insurance' for your stock.If there is no significant fluctuation after earnings, you can also close the put position and re-open it when protection is needed.

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Disclaimer

This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee for any securities, financial products, or instruments. The risk of loss in trading options can be substantial. In some cases, your losses may exceed the initial margin amount deposited. Even if you have set contingent orders, such as 'stop-loss' or 'limit' orders, they may not necessarily prevent losses. Market conditions may render these orders unexecutable. You may be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will still be responsible for any deficit balance in your account. Therefore, before trading, you should study and understand options and carefully consider whether such trading is suitable for you based on your financial situation and investment objectives. If you trade options, you should be familiar with the procedures upon exercising options and at expiration, as well as your rights and obligations when exercising options and at expiration.

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