Schaeffer's Trading Floor Blog

Call Buyers Set Sights On GT Advanced Technologies Inc. (GTAT)

Lingering pessimism could spur GTAT to higher highs

by 3/18/2014 12:00 PM
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GT Advanced Technologies Inc. (NASDAQ:GTAT) charged out of the gate this morning to hit an all-time high of $18.51. Last night, company CEO Tom Gutierrez appeared on CNBC to outline his company's partnership with Apple Inc. (NASDAQ:AAPL), and investors have responded favorably to this publicity. At last check, the shares were still 7.8% higher at $18.48, bringing their year-over-year gains north of 500%. In fact, during the past three months, GTAT has outperformed the broader S&P 500 Index (SPX) by 91.3 percentage points. Not surprisingly, this bullish price action has prompted plenty of call buying in the stock's options pits.

Specifically, during the last week on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), the diversified tech firm has seen 7,961 calls bought to open, compared to 531 puts. In other words, about 15 calls were initiated for each put in the previous five sessions.

Taking a step back to include 10 weeks' worth of data -- including information from the NASDAQ OMX PHLX (PHLX) -- yields a similarly call-skewed figure. GTAT's 50-day ISE/CBOE/PHLX call/put volume ratio checks in at 11.71 -- higher than more than three-quarters of readings from the last 12 months. In other words, traders have scooped up calls over puts with greater rapidity than usual of late. (However, with nearly 28% of the stock's float sold short, a portion of these long calls -- especially those at out-of-the-money strikes -- may be protective in nature.)

Digging deeper, peak call open interest among the front-month series of options resides at GT Advanced Technologies' in-the-money March 17 strike. Nearly 10,500 contracts can be found here, and most were bought to open, as speculators wagered on an advance north of the strike.

Option traders aren't the only ones that are bullish on GTAT. Among the eight analysts covering the security, six have doled out a "buy" or better rating, versus a pair of "holds" and not a single "sell" recommendation. At the same time, however, the stock's consensus 12-month price target of $18.67 is just 1% higher than the current per-share price.

Based on the above, it's clear that a significant portion of speculators like GT Advanced Technologies Inc.'s (NASDAQ:GTAT) prospects. Nevertheless, pessimism still remains in the form of lofty short interest levels and a less-than-ambitious price target. Consequently, if the shares continue to muscle their way up the charts, the shorts could get squeezed and/or the brokerage bunch forced to lift their targets, paving the way for additional gains.

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