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Option Bears Blitz Cirrus Logic

CRUS skeptics are buying short-term put options

by 1/24/2013 10:39 AM
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Option bears converged on Cirrus Logic, Inc. (NASDAQ:CRUS - 27.17) on Wednesday, with traders gambling on a sympathy swoon for the Apple Inc. (NASDAQ:AAPL) supplier. By the time the dust settled, CRUS had seen close to 6,400 puts cross the tape -- more than doubling its average single-session volume.

Most popular was the February 30 put, which saw more than 1,500 contracts change hands at a volume-weighted average price (VWAP) of $2.51. The bulk of the puts crossed at the ask price, and nearly all of the action translated into new open interest, hinting at buy-to-open activity.

By purchasing the puts to open, the buyers were expecting CRUS to drop in the short term. Specifically, breakeven on the trade is $27.49 (strike minus VWAP) -- a level the stock breached right out of the gate this morning, as expectations for disappointing AAPL earnings came to fruition.

In early trading today, speculators are already honing in on the February 29 put, which has seen nearly 1,100 contracts change hands on open interest of fewer than 1,000, once again pointing to an influx of fresh initiations. Furthermore, 97% of the puts crossed at the ask price. More specifically, the contracts have traded at a VWAP of $3.38, meaning the buyers will profit if CRUS retreats south of $25.62 by the closing bell on Friday, Feb. 15. Included in that period is the company's earnings results, which will be released tonight after the closing bell.

However, the recent appetite for CRUS puts is nothing new for the stock. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.70 ranks in the 88th percentile of its annual range. In other words, option buyers have initiated pessimistic positions at a faster-than-usual clip during the past couple of weeks even if calls are more popular overall.

What's more, these bears are paying a pretty penny for their front-month puts. Heading into tonight's earnings release, the security's Schaeffer's Volatility Index (SVI) has ascended to 70% -- in the 62nd percentile of its annual range. Or, in simpler terms, CRUS' front-month options are relatively expensive at the moment.

At last check, CRUS has shed 9% to explore the $27.17 level.


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