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Tuesday Tumble: Altera Corporation (ALTR)

Why we think ALTR is vulnerable from a contrarian perspective

by 1/7/2014 1:51:01 PM
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Every week in the Tuesday Tumble, we explore a potentially overloved stock that may be vulnerable going forward, from a contrarian perspective. This week, our choice is semiconductor concern and S&P 500 Index (SPX) component Altera Corporation (NASDAQ:ALTR).

On the charts, ALTR has struggled for quite a while. On a year-over-year basis, the shares are down nearly 9% to trade at $32.23. Meanwhile, on a relative-strength basis, the stock has underperformed the SPX by more than 19 percentage points during the past 60 sessions. What's more, Altera is currently facing a layer of overhead resistance in the form of its 50-day moving average.

Daily Chart of ALTR since October 2013 With 50-Day Moving Average

In spite of these technical struggles, ALTR isn't lacking in bullish attention. During the last 10 sessions, the stock has racked up a lofty call/put volume ratio of 30.71 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, during the past two weeks, more than 30 calls have been bought to open for every put. On top of that, the ratio ranks in the 92nd percentile of its annual range, conveying calls have been picked up over puts at a much faster-than-usual pace.

In a similar vein, Schaeffer's put/call open interest ratio (SOIR) for Altera is lodged at 0.33, meaning call open interest is roughly three times greater than put open interest for options with a shelf-life of three months or less. The SOIR is lower than 73% of similar readings from the past year, as well, suggesting a pronounced bias toward short-term calls (relative to puts). As these bullishly skewed bets begin to unwind in the face of ALTR's lackluster technicals, the security may encounter contrarian headwinds.

Finally, outside of the options pits, analysts are split down the middle on the semiconductor name. Of the 18 firms covering the shares, nine have rated ALTR a "buy" or better, compared to nine "hold" or worse recommendations. Meanwhile, the consensus 12-month price target for the shares is $37.10 -- roughly 15% higher than their current perch. Long story short, downgrades and/or price-target cuts may be on the horizon for Altera Corporation (NASDAQ:ALTR), which could compound the company's technical troubles.

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