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Put Players Pile On as Cirrus Logic, Inc. (CRUS) Sinks

More headwinds could be in store for CRUS

by 4/18/2013 9:44 AM
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Cirrus Logic, Inc. (NASDAQ:CRUS) was heavily targeted by put players on Wednesday, amid the stock's nearly 16% tumble. Roughly 18,000 contracts crossed the tape, almost nine times the average daily volume for put options. Some of these bearishly skewed bettors scrambled to take profits off the table, while others forecast an additional slide through week's end.

Jumping right in... CRUS' May 19 put was the most active strike on the day, where the majority of the 3,983 contracts traded went off at the bid price. Implied volatility fell 3.3 percentage points, and open interest declined overnight, pointing to sell-to-close activity. With Cirrus Logic closing the day at $18.05, it appears a number of these bearish traders were cashing in on the stock's decline.

Meanwhile, the stock's April 18 put was also in high demand. Of the 1,338 contracts exchanged, 70% crossed at the ask price, and open interest added 851 positions overnight. Summing it all up, it appears that new bullish bets were initiated here. By purchasing the at-the-money puts, traders expect Cirrus Logic to land below $18 by tomorrow's close -- when front-month options expire. More specifically, the speculators will begin to profit with each step south of $17.71 (strike minus the volume-weighted average price of $0.29) CRUS takes over the next two sessions. At last night's close, delta for the put was docked at negative 0.47, or 47%, suggesting a roughly 1-in-2 chance the position will find its way into profitable territory by expiration.

As touched upon, the stock took a steep slide yesterday, after the chip maker issued a dreary revenue warning. The dismal outlook prompted a bevy of bearish brokerage attention, and additional downgrades and/or price-target cuts could be on the horizon. Cirrus Logic currently maintains six "strong buy" recommendations, compared to two middling "holds," and not a single "sell." Plus, the consensus 12-month price target of $36.29 more than doubles the equity's current perch. Going forward, a re-evaluation of ratings from these remaining holdouts could create some contrarian-related headwinds for CRUS.

Elsewhere on the tech circuit, Apple Inc. (NASDAQ:AAPL) felt the brunt of Cirrus Logic, Inc.'s (NASDAQ:CRUS) downbeat forecast, as the latter provides parts for the former's iPhone and iPad. AAPL shed more than 5% on the day, and fell below the round-number $400 mark for the first time on an intraday basis since Dec. 23, 2011.


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