Silicon Laboratories (SLAB: sentiment, chart, options) attracted the attention of some bears yesterday, as option traders showed a distinct preference for SLAB put options on the International Securities Exchange (ISE) Monday. By the end of the trading day, SLAB scored one of the highest single-day put/call ratios on the exchange, checking in with a reading of 1,163.0. Specifically, traders bought 1,163 put options on the ISE yesterday, compared to just 1 call option that was bought to open.
This wave of put buying came in the wake of a Silicon Labs report that the company has introduced the first fully-integrated AM/FM radio receivers with short-wave and long-wave band coverage – hardly the kind of dire news you would expect to spark such bearish activity. Nevertheless, the stock finished on a loss of nearly 3% yesterday, extending a streak of daily closes on the south side of its 10-day and 20-day moving averages.
As a result of yesterday's put-oriented trading on the ISE, the stock's Schaeffer's put/call open interest ratio (SOIR) crept up from 0.93 to 0.96 overnight. The new reading ranks higher than 91% of other such readings taken during the past year, indicating relatively extreme levels of pessimism from option traders.
In the soon-to-expire November series, SLAB is facing a wall of overhead call interest. A total of 9,837 contracts lie in residence at the out-of-the-money November 40, 45, and 50 strikes. The trend continues in the December and January series, where the 45-strike call option reigns as the most popular.
Unfortunately for SLAB, put traders are favoring in-the-money options. In the November, December, and January series, the in-the-money 40-strike call is home to peak put open interest. Meanwhile, out-of-the-money put open interest is very minimal in the front 3-months' series, which means that SLAB can't count on structural support from out-of-the-money put contracts.
However, the shares aren't totally without support. The stock's 10-week and 20-week trendlines have combined to boost the equity since mid-April 2007, and these intermediate-term moving averages have contained all of SLAB's weekly closings in the intervening months. The shares are currently perched just south of support from their 20-week moving average, but a 1.8% gain in today's trading suggests that the equity can easily climb back atop this trendline by week's end.
Plus, the stock has plenty to gain from an unwinding of investor pessimism. In addition to SLAB's inflated SOIR, more than 10% of the stock's available float has been sold short. At the stock's average daily volume, it would take more than a week's worth of trading days for all of these bearish bets to be repurchased. If the stock bounces higher off its intermediate-term support levels, it could gain an additional boost from short-covering support as the bears try to limit their losses.
Analysts are already aligned in SLAB's corner. Zacks reports that the stock has garnered 6 "strong buys" and 3 "buys" from brokerage firms, along with just 4 skeptical "hold" ratings. Any downgrades from this bullish group could attract some selling pressure; however, the company isn't likely to attract such negative attention unless SLAB's technical performance falters.
Meanwhile, there's also room for more analysts to offer up their opinions. As recently as October 29, Kaufman Bros. initiated coverage of the stock at "buy," pushing the stock to a fractional gain for that trading day. Any positive comments or new initiations from brokers could spark some buying pressure and help give the shares a lift.
In today's trading, option players are favoring back-month contracts. The stock's January 2008 40 call has seen 937 contracts cross the tape on open interest of 2,707, while the January 2008 40 put has seen 1,714 contracts change hands on open interest of 9,083.
For more commentary on today's market-moving news from me and my colleagues Andrea, Jocelynn, Mark, Joseph and Beth, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
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