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The shares of ARM Holdings plc (ADR) (NASDAQ:ARMH) just finished a second straight session atop their 10-day and 20-day moving averages, a feat not accomplished since mid-May, when ARMH was flirting with all-time highs. What's more, some options traders are anticipating an even stronger rebound for the stock, as evidenced by yesterday's affinity for short-term calls.
By the closing bell, ARMH saw 6,200 calls cross the tape -- more than twice its average daily call volume, and three times the number of puts exchanged. Most popular were the July 36 and 37 calls, which saw roughly 2,000 and 3,300 contracts change hands, respectively. Most of the calls traded on the ask side, and open interest soared at both strikes overnight, hinting at newly bought bullish bets.
The 36-strike calls traded at a volume-weighted average price (VWAP) of $2.55, meaning the buyers will begin to profit with each step north of $38.55 (strike price plus VWAP) ARMH takes within the next couple of weeks. Meanwhile, the 37-strike calls crossed at a VWAP of $1.87, indicating a breakeven of $38.87 for the buyers. ARMH closed at $38.33 on Tuesday. Should the stock retreat beneath the strikes by expiration on July 19, the most the buyers can lose is the initial premium paid for the calls.
However, that risk isn't anything to scoff at. The stock's Schaeffer's Volatility Index (SVI) is on the rise ahead of ARM Holdings plc's (ADR) (NASDAQ:ARMH) earnings release due later this month, and now stands at 43% -- above 69% of all other readings from the past year. Or, in simpler terms, ARMH's short-term options are relatively expensive right now.
From a broader sentiment perspective, yesterday's appetite for bullish bets was just more of the same for ARMH. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.68 registers in the 83rd percentile of its annual range. In other words, option buyers have picked up ARMH calls over puts at an accelerated clip during the past two weeks.