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Xilinx Bears Buy Puts to Bet On a Pullback

XLNX is struggling beneath its 200-day moving average

by 7/2/2012 1:36:29 PM
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The shares of Xilinx, Inc. (NASDAQ:XLNX - 33.17) are struggling to climb back atop their 200-day moving average, which has rejected nearly all of the stock's advances since mid-May. What's more, it looks like the options crowd is bracing for a short-term retreat for the stock, as evidenced by today's healthier-than-usual appetite for long puts.

In early afternoon trading, XLNX has seen about 2,200 puts change hands -- roughly five times its average intraday put volume. Nearly all of the action has centered on the out-of-the-money July 22 put, which has seen more than 2,000 contracts traded on open interest of fewer than 1,200, hinting at newly opened positions. Plus, 94% of the front-month puts have crossed at the ask price, suggesting they were purchased.

By buying the puts to open, the traders are expecting XLNX to retreat beneath the $32 level within the next few weeks. However, today's preference for puts is becoming par for the course among XLNX bettors, with the stock sporting a 10-day put/call volume ratio of 1.49 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the 71st percentile of its annual range, implying that options players have bought to open XLNX puts over calls at a quicker-than-usual step during the past two weeks.

Nevertheless, the short-term options crowd is still way more call-heavy than usual at the moment. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.53 indicates that calls nearly double puts among options expiring within three months. Plus, this ratio sits just three percentage points from an annual low, suggesting near-term options players have rarely been more call-skewed during the past year.

Elsewhere on Wall Street, the majority of analysts appear somewhat wary of XLNX. Currently, seven brokerage firms offer up "buy" or better recommendations, compared to 12 analysts issuing tepid "hold" suggestions. Likewise, the consensus 12-month price target stands at $38.65, representing a premium of 15% to XLNX's closing price of $33.57 on Friday.

As alluded to earlier, the shares of XLNX are currently battling their 200-day moving average, which is lingering in the $33-$34 neighborhood. This region has acted as both support and resistance over the past year, which could exacerbate the equity's challenges in the area.

Daily Chart of XLNX since June 2011 With 200-Day Moving Average


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