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Option Buyers Descend as Skyworks Solutions Bounces Back

SWKS investors are scooping up soon-to-expire calls

by 9/21/2012 10:48 AM
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Eleventh-hour option bulls are flocking to Skyworks Solutions Inc (NASDAQ:SWKS - 25.53) this morning. At last check, the tech concern has already seen roughly 17,000 calls cross the tape -- about nine times its average intraday call volume, and close to six times the number of SWKS puts traded.

Attracting the most attention have been the soon-to-expire September 25- and 26-strike calls, which have each seen around 3,000 contracts exchanged. The bulk of the calls have changed hands at the ask price, and volume has exceeded open interest at both strikes, pointing to buy-to-open activity.

By purchasing the calls to open, the buyers are expecting SWKS to extend this morning's jump through the end of the session. Specifically, the volume-weighted average price (VWAP) of the 25-strike calls is $0.71, while the VWAP of the 26-strike calls is $0.26. In other words, the September 25 call buyers will profit if SWKS topples the $25.71 level (strike plus premium paid), while the September 26 call buyers will reap a reward if the stock conquers the $26.26 level by the closing bell today.

However, today's appetite for bullish bets is just par for the course for SWKS. During the past 10 sessions, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than eight SWKS calls for every put. In fact, the security's 10-day call/put volume ratio of 8.23 ranks in the 77th percentile of its annual range, suggesting option buyers have picked up calls over puts at a faster-than-usual clip during the past couple of weeks.

As such, the stock's Schaeffer's put/call open interest ratio (SOIR) now sits at 0.43, indicating that calls more than double puts among the front three-months' series of options. What's more, this ratio registers in the 13th percentile of its annual range, implying that short-term options traders have rarely been more call-heavy on SWKS during the past year.

In the same optimistic vein, analysts have doled out 12 "strong buys" and one "buy" rating on SWKS, compared to four lukewarm "holds" and not a single "sell." Meanwhile, the average 12-month price target on the equity sits at $34.35, implying expected upside of 43% to SWKS' closing price on Thursday.

However, despite the company's upwardly revised earnings guidance yesterday, the shares of SWKS took a tumble, ending south of their 200-day moving average for the first time since January. As such, the stock was slammed by a bevy of pre-market price-target cuts, with Barclays, ThinkEquity, Canaccord Genuity, and UBS slashing their respective targets to $26, $30, $32, and $33.

In early trading today, though, the stock is in recovery-mode, after repair firm iFixit said SWKS chips were, in fact, used in Apple Inc.'s (NASDAQ:AAPL) iPhone 5, which went on sale today. At last check, the shares of SWKS have advanced 6.3% to trade near $25.53, and are on pace to finish the session back atop their aforementioned 200-day trendline.

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