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SanDisk Corporation (SNDK) Option Players See Limited Upside

SNDK was targeted by out-of-the-money call sellers

by 6/19/2013 9:59 AM
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The shares of SanDisk Corporation (NASDAQ:SNDK) are up 0.4% at $63.27, after touching a new seven-year high of $63.73 right out of the gate. However, despite the stock's year-to-date advance of more than 45%, some option traders are gambling on limited upside for SNDK in the intermediate term.

During the course of Tuesday's session, SanDisk Corporation saw roughly 16,000 calls cross the tape -- more than double the norm. The out-of-the-money October 70 call saw the biggest overnight increase to open interest, with nearly 2,600 contracts added. However, the majority of the calls crossed on the bid side, suggesting they were sold.

By writing the calls to open, the sellers expect SNDK to remain south of $70 through October options expiration. In this best-case scenario, the calls will remain out of the money, and the sellers can retain the entire premium received from the sale.

Of course, the traders could be SNDK shareholders betting on a bout of stagnation for the shares. By writing covered calls, the investors can supplement income while keeping their SNDK shares. But, should the equity surmount the strike within the options' lifetime, they could miss out on additional upside north of $70.

From a broader sentiment standpoint, most options traders have been utilizing calls for more traditional, bullish reasons. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open almost three SNDK calls for every put during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 2.85 ranks in the 83rd percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets of late.


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