BUY, SELL, HOLD (2)

Short-Term Bears Swarm Apple Inc. Suppliers

Weekly puts are popular among Apple Inc. (AAPL) suppliers Cirrus Logic, Inc. (CRUS), Skyworks Solutions Inc (SWKS), and Avago Technologies Ltd (AVGO)

Nov 10, 2015 at 11:52 AM
facebook X logo linkedin


Apple Inc. (NASDAQ:AAPL) is swimming in red ink, and is hands-down the worst-performing blue chip today, after analysts at Credit Suisse pointed to weak demand for iPhones. Against this backdrop, Apple suppliers are also feeling the heat, and short-term option bears are making their way toward Cirrus Logic, Inc. (NASDAQ:CRUS), Skyworks Solutions Inc (NASDAQ:SWKS), and Avago Technologies Ltd (NASDAQ:AVGO).

CRUS is 7.3% lower at $29.87. After enjoying a post-earnings halo lift from AAPL in late October, the stock is now down 3.2% for November. CRUS puts are trading at 1.3 times the average intraday rate, with buy-to-open action detected at the weekly 11/13 30.50-strike put -- the most active option thus far.

By purchasing the puts at a volume-weighted average price (VWAP) of $0.78, the buyers will profit the lower Cirrus Logic, Inc. sinks south of $29.72 (strike minus VWAP) by the close on Friday, when the weekly options expire. In light of CRUS' plunge, delta on the put has moved to negative 0.63 from negative 0.16 yesterday, reflecting the soaring odds of the option expiring in the money. Essentially, the weekly 30.50-strike puts now hold a 63% chance of an in-the-money finish on Friday.

SWKS is 5.3% lower at $80.40, and the shares are now poised to close the week back below their 10-week moving average. Last week, SWKS finished atop this trendline for the first time since early July. Overall options volume is running at 1.6 times the average intraday pace, and it looks like bears might be buying to open weekly 11/13 80-strike puts.

The puts traded at a VWAP of $1.25, making at-expiration breakeven $78.75. Delta on the put now stands at negative 0.46, compared to negative 0.12 at yesterday's close. However, bearish bets are nothing new for Skyworks Solutions Inc. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.80 stands higher than three-quarters of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls during the past two weeks.

Finally, AVGO is suffering a similar fate, though the stock hasn't surrendered as much as its peers. At last check, the security is down 3.9% at $121.57, with the $120-$121 region emerging as support. This area has contained AVGO's dips since mid-to-late August, and is home to the equity's ascending 50-week moving average.

Despite the security's year-to-date gain of more than 20%, option buyers have placed bearish bets at an annual-high clip during the past 10 weeks on the ISE, CBOE, and PHLX. In fact, the stock's 50-day put/call volume ratio sits at a 52-week high of 1.06.

Today, AVGO options volume is running at twice the average intraday pace, with the weekly 11/13 110-strike put most active. It looks like a healthy portion of the action is of the buy-to-open variety, with traders paying a VWAP of $0.22. As such, the buyers will begin to make money if AVGO takes a major turn for the worse and breaches $109.78 -- territory not charted since late August -- by Friday's close. Delta on the put still sits at a meager 0.066, compared to 0.026 yesterday.

Should Avago Technologies Ltd rebound off support and extend its journey into positive year-to-date territory, an unwinding of pessimism in the options pits could fuel the shares even higher. What's more, short interest currently represents more than a week's worth of pent-up buying demand -- a level not seen in more than a decade -- at AVGO's average pace of trading.

 

You Don’t Need 25 Alerts -- You Need ONE You Can Trust!

That’s the idea behind Trade of the Week, Schaeffer’s newest trade alert.

Every Monday morning before the opening bell, you’ll receive a single, expertly researched trade recommendation -- built from the same proprietary research we’ve been using for over four decades.

It’s not just a signal.

It’s a plan designed for traders who are tired of jumping from alert to alert without ever finding their edge.

No juggling alerts. No switching directions mid-week. Just one clear, expertly researched trade idea -- delivered before the market even opens.

👉 JOIN RIGHT NOW FOR JUST $1 TO GET THE NEXT TRADE!