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Bearish traders have descended upon Analog Devices, Inc. (NASDAQ:ADI) in droves today, as approximately 25,000 puts have switched hands so far. This is a whopping 94 times the norm, and more than 27 times the number of calls exchanged. What's more, the equity's 30-day, at-the-money implied volatility (IV) has jumped 1.9 percentage points (or 9.5%) since yesterday's closing bell to rest at 22.6%.
Snagging the lion's share of the attention is the October 47 put, where north of 21,700 contracts have crossed the tape -- the majority of them at the ask price, implying they were purchased. Since this strike currently holds open interest of just 361 contracts -- and IV is up 2.6 percentage points -- it can be assumed that fresh pessimistic bets have been initiated here. Additionally, data from the International Securities Exchange (ISE) corroborates our theory of buy-to-open activity.
Because the puts traded at a volume-weighted average price (VWAP) of $1.13, the traders will profit with each step ADI takes below breakeven at $45.87 (strike price less the VWAP) between now and the close on Oct. 18, when these back-month options expire. This would entail a decline of 4.2% from the security's present price of $47.90 -- in territory not explored on a daily closing basis since early July.
The delta for this put is docked at negative 0.38, implying it has a nearly 40% chance of moving into the money ahead of October expiration. However, should the tech issue stay north of the $47 mark throughout the option's lifetime, the put buyers' losses are capped at the initial cash outlay.
Technically speaking, Analog Devices, Inc. (NASDAQ:ADI) has climbed close to 14% year-to-date, and more than 19% during the past 12 months. On the charts, the stock's recent pullback was contained by its 32-week moving average, which has served primarily as support since late July 2012. At last check, the shares had followed the broader market path higher today to tack on 1.3%.
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