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SanDisk Option Bears Brace for Speed Bumps

SNDK traders are buying puts ahead of earnings

by 1/23/2013 10:35 AM
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Option traders are picking up pre-earnings puts on SanDisk Corporation (NASDAQ:SNDK - 48.15), with speculators apparently bracing for some short-term technical turmoil. In the first hour of trading, the tech concern has already seen roughly 5,750 puts change hands -- almost triple its average intraday put volume.

Nearly half of the action has transpired at the February 45 put, which has seen over 2,000 contracts cross the tape. All of the puts have traded at the ask price, and implied volatility on the newly front-month put is trending higher, hinting at buy-to-open volume.

By purchasing the out-of-the-money puts to open, the buyers have one of two motives: to profit from a post-earnings retreat, or to lock in an appealing sale price for their SNDK shares, should the stock take a hit. In the case of the former, the buyers will make money if SNDK breaches the $43.95 level (strike minus volume-weighted average price of $1.05) by February options expiration. In the case of the latter, the primary goal is for SNDK to resume its recent uptrend; the puts simply act as options "insurance."

Whatever the motive, this morning's appetite for SNDK puts represents a change of pace in the options arena. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have purchased nearly three SNDK calls for every put during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 2.81 stands higher than 83% of all other readings of the past year, implying that option buyers have initiated bullish bets over bearish at a faster-than-usual clip.

In the same vein, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.59 indicates that calls comfortably outnumber puts among options expiring within three months. What's more, this ratio sits in the 11th percentile of its annual range, indicating that near-term options traders have rarely been more call-skewed during the past 52 weeks.

On the charts, SNDK has powered more than 25% higher since dipping below the $39 marker in mid-November, led into the black atop its 10-day moving average. Now, the stock is attempting to claw its way back atop the $49 marker -- site of SNDK's bearish gap in early April.

Off the charts, SanDisk has exceeded analysts' per-share profit projections in three of the past four quarters, according to Thomson Reuters. Ahead of tonight's release, analysts, on average, are anticipating a profit of 74 cents per share for the company.


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