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Option Brief: ARM Holdings plc (ADR) (NASDAQ:ARMH) rose 3.5% yesterday, as traders brushed off a price-target cut at Topeka Capital, and instead cheered Tuesday's upbeat outlook on mobile-chip growth from CEO Simon Segars -- a sentiment echoed by Credit Suisse. Options traders took kindly to the positive price action, and scooped up calls at a rate of four times the daily average. Diving deeper, a number of traders honed in on the $50 mark, betting on a move north of this round-number level over the next several weeks.
Specifically, ARMH's June 50 call saw the most action on Wednesday. By the close, 3,001 contracts were on the tape -- including two large sweeps totaling 2,466, which changed hands at or near the ask price, hinting at buyer-driven activity. Plus, open interest rose the most of any strike overnight, making it safe to assume that new positions were initiated.
In order for these call buyers to profit, ARMH needs to be sitting north of $50.15 (strike plus volume-weighted average price of $0.15) at the close on Friday, June 20 -- when the options expire -- above which gains are theoretically unlimited. Should the equity fail to rally the more than 12.7% necessary for this scenario to play out, the most the speculators stand to lose is the initial premium paid. However, the stock's Schaeffer's Volatility Index (SVI) of 29% ranks lower than 83% of similar readings taken in the past year, suggesting premium on ARMH's front-month options is inexpensive at the moment, from a volatility perspective.
This bullish positioning among option traders is a bit surprising when looking at ARMH's recent technical showing (yesterday's price action notwithstanding). In fact, since hitting its most recent high of $52.79 on April 9, shares of the chip maker have shed almost 16% to linger near $44.49. What's more, the stock is currently testing support at its 80-week moving average -- a trendline that, since September 2012, has only been breached once on a weekly closing basis. In today's session, ARM Holdings plc (ADR) (NASDAQ:ARMH) looks poised to continue with Wednesday's momentum, with the stock up 0.3% at the open.