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Front-Month Call Volume Runs Hot on Cirrus Logic, Inc. (CRUS)

Traders show a fondness for CRUS' May-dated calls

by 5/9/2013 2:23 PM
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Bullish speculators are pouncing on Cirrus Logic, Inc. (NASDAQ:CRUS) today, as roughly 13,000 calls have crossed the tape so far -- more than triple the norm. By comparison, fewer than 5,400 puts have changed hands. It looks as though a number of these call players are focusing on the stock's front-months series of options, and are expecting the tech concern to trek higher over the course of the next several days.

Most popular have been the May 22 and 23 strikes, where around 4,200 calls have traded, collectively. The majority of these contracts were exchanged at the ask price, and both strikes have seen an increase in implied volatility -- underscoring our suspicion of buy-to-open activity. Since the May 22 calls were exchanged at a volume-weighted average price (VWAP) of $1.03, these traders are betting on CRUS to keep rising north of $23.03 (strike price plus the VWAP) through the close on May 17, when front-month options expire.

Meanwhile, buyers of the May 23 calls are counting on the stock to perforate the $23.62 level (strike price plus the VWAP of $0.62) within the same timeframe. This denotes an increase of about 1.5% to the equity's current perch at $23.26. However, even if CRUS fails to climb high enough to reward these speculators, they can rest assured that the premium paid for their call purchases was relatively cheap. The security's Schaeffer's Volatility Index (SVI) of 40% ranks lower than just 6% of similar annual readings, indicating Cirrus Logic, Inc.'s front-month options are reasonably priced at the moment.

This penchant for calls over puts is merely an extension of the stock's recent trend in the options pits. In fact, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 20-day call/put volume ratio of 2.25 for CRUS. Or, in simpler terms, calls bought to open have more than doubled puts during the past four weeks.

Considering the equity's year-to-date loss of more than 19%, this overall optimism toward CRUS is rather puzzling. What's more, the shares have trailed the broader S&P 500 Index (SPX) by over 27 percentage points during the past three months. On the charts, the stock continues to trade south of its 20-week moving average -- a trendline not surmounted since early November.


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