On Friday, call trading on Cypress Semiconductor (CY: sentiment, chart, options) soared, indicating that optimistic expectations for the stock may be on the rise. The International Securities Exchange (ISE) reported that the stock has 8,088 calls bought to open on that exchange on Friday compared to only 42 puts that were purchased. In other words, roughly 192 calls were purchased for every 1 put.
After the January option expiration on Friday, the stock's Schaeffer's put/call open interest ratio dropped from 0.64 to 0.41. This reading marks an annual low for the ratio, showing that at no other time during the past year have short-term options players been more bullishly aligned toward the shares.
Digging into the equity's open interest configuration, we find a preference for out-of-the-money calls. The February 30 call has open interest of more than 11,500 contracts, while nearly 3,900 contracts reside at the February 35 call. On the other hand, peak put open interest numbers fewer than 6,300 contracts at the 30 strike, while the next heaviest put is the 22.50 strike with only 2,100 contracts. This lack of put open interest indicates that investors don't expect that shares to fall much father during the near term. Furthermore, the extremely heavy amount of out-of-the-money calls would point to expectations for a sharp rally in the shares.
One potential catalyst for the stock's next sharp move could be its earnings report. The firm is slated to report earnings on Thursday, January 24. Analysts are predicting a profit of 28 cents per share, which is an 83% improvement over the company's earnings for the same period a year ago. Revenue is forecast to come in at $439.08 million, according to Thomson.
Technically speaking, the shares have declined from its near-term peak of $38.95 on December 26, falling more than 42% under the weight of their 10-day and 20-day moving averages. The security's growing technical weakness as pulled its 10-week and 20-week trendlines into a bearish cross, which often indicates further downside for the shares.
The stock is currently perched on support at the 22 level, which is also home to the stock's 20-month moving average. The shares of CY have not finished a month below this long-term trendline since June 2005.
Overall, a weaker-than-expected earnings report later this week could push the shares through support at the 22 level as bullish investors unload their long positions and go searching for greener pastures.
For timely commentary on today's market-moving news from me and my colleagues Andrea, Elizabeth, Beth, Joseph, and Mark, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
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