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Bullish Bets Made On Struggling Cirrus Logic

CRUS' January 2013 28-strike call saw a rush of buy-to-open activity on Tuesday

by 12/12/2012 10:54 AM
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Cirrus Logic, Inc. (NASDAQ:CRUS - 28.95) was heavily targeted by call players on Tuesday, as speculators placed a bet on future upside in the shares. Nearly 8,700 contracts crossed the tape, more than double the average daily volume for call options. Meanwhile, just 1,806 put contracts changed hands, fewer than the 2,229 expected.

The most active strike of the day was CRUS' January 2013 28 call, which saw more than 2,500 contracts trade. The majority of these went off at the ask price, and open interest added 1,921 positions overnight, indicating the initiation of new bullish positions. While this strike is currently in the money, traders paid a volume-weighted average price (VWAP) of $2.37, meaning the stock needs to be above breakeven at $30.37 (the strike plus the average net debit) by expiration in order to be profitable. This is a 4.9% premium to current levels.

Expanding the scope, it seems option players have been scooping up calls over puts with some rapidity in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly nine calls for every put during the past 10 sessions. This call/put volume ratio of 8.78 ranks higher than 90% of other such readings taken over the past year, suggesting bullish bets have been accumulated over bearish at a near annual-high clip.

Echoing this trend is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.56. Not only does this show that call open interest almost doubles put open interest among options expiring in the next three months, but it ranks in the 34th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward CRUS.

On a technical basis, the shares are sitting on an impressive 82.6% year-to-date gain. However, the stock has struggled in recent months, and has backtracked more than 36% since tagging an 11-year high of $45.49 on Sept. 7. Additionally, the equity has lagged the broader S&P 500 Index (SPX) by 32 percentage points over the past 60 sessions. CRUS' downward trajectory has effectively filled in its late-July bullish gap.

To the dismay of Tuesday's call buyers, CRUS has shed 1.1% in today's session, and was last seen hovering near $28.95. Should the stock fail to topple the $30.37 mark by the close on Jan. 18, however, the most the call buyers can lose is the initial premium paid.


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