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Option Bulls Circle Cirrus Logic

CRUS traders are targeting front-month calls

by 1/8/2013 1:36 PM
Stocks quoted in this article:

Since testing support in the $25-$26 region in mid-December, Cirrus Logic, Inc. (NASDAQ:CRUS - 29.70) has rebounded roughly 17%. What's more, the stock is set to end the week atop its 10-week trendline for the first time since mid-September, and it looks like options traders are rolling the dice on more short-term upside for the tech concern.

In early afternoon action, CRUS has seen around 11,000 calls cross the tape -- more than three times its typical intraday volume of more than 3,200 calls. On the flip side, just under 1,900 CRUS puts have exchanged thus far.

Most popular has been the January 2013 29-strike call, which has seen nearly 2,700 contracts traded on open interest of fewer than 2,100 contracts, pointing to new initiations. Plus, the majority of the calls have crossed at the ask price, underscoring our theory of freshly bought bullish bets.

By purchasing the calls to open, the buyers are expecting CRUS to extend its momentum north of $29 in the near term. More specifically, the calls traded at a volume-weighted average price (VWAP) of $1.61, meaning the buyers will begin to profit if CRUS muscles atop the $30.61 level (strike plus VWAP) by the closing bell on Friday, Jan. 18. At risk is the initial premium paid for the calls -- which isn't much, judging by the Schaeffer's Volatility Index (SVI) of 51%. This reading sits just 29 percentage points from an annual low, suggesting front-month options are relatively inexpensive at the moment.

At last check, CRUS has bucked the broad-market trend lower, tacking on 0.1% to flirt with the $29.70 level.

Weekly Chart of CRUS since May 2012 With 10-Week Moving Average


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