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RF Micro Devices, Inc. (NASDAQ:RFMD) has more than doubled in value year-to-date to trade at $10.90. Last week, the stock was able to extend this momentum thanks to a strong quarterly earnings report, a better-than-expected current-quarter forecast, and a round of price-target hikes -- the most optimistic coming from Brean Capital, which upped its price target by $2 to $14. Not surprisingly, sentiment in the stock's options pits has tended toward the bullish side in recent months.
Specifically, the security's 50-day call/put volume ratio of 16.11 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 77th percentile of its annual range. Simply stated, calls have been bought to open over puts at an accelerated clip in recent months. In today's session, calls are outpacing puts by a roughly 42-to-1 margin, with buy-to-open activity detected at the January 2015 12-strike call.
These longer-term calls are being purchased for a volume-weighted average price (VWAP) of $0.75, making breakeven $12.75 (strike plus the VWAP) at the close on Friday, Jan. 16, 2015, when the options expire. Gains are theoretically unlimited north of here -- a level which would mark a 13-year high for RFMD -- while losses are capped at 100% of the premium paid, should the stock settle south of $12 at expiration. Separately, it appears some of the activity at the January 2015 12-strike call may be a result of one speculator re-evaluating her bullish bet by rolling her August 11 calls up one strike and out five months.
Meanwhile, with more than 14% of the stock's float sold short, a portion of the recent call buying could be at the hands of short sellers hedging against any additional upside. From a contrarian perspective, though, should RF Micro Devices, Inc. (NASDAQ:RFMD) continue its trek up the charts, a round of short-covering could help fuel the security's fire. At RFMD's average daily pace of trading, it would take nearly six sessions to cover all of the equity's shorted shares.