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Traders Strategize Bearishly with ON Semiconductor Calls

Call sellers jump on ONNN, despite a stronger-than-expected earnings report

by 2/10/2012 11:31 AM
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ON Semiconductor (ONNN - 9.50) revealed an adjusted fourth-quarter profit of 13 cents per share on revenue of $767.9 million after Wednesday's close, toppling Wall Street's estimates for earnings of 6 cents per share on sales of $759.7 million. This stronger-than-expected earnings report may have sparked an uptick in call volume yesterday, as more than 4,500 of these options were exchanged, reflecting six times the equity's average daily volume.

However, upon closer inspection, over 3,100 calls were traded at the out-of-the-money April 10 strike -- most of them at the bid price, suggesting they were sold. Meanwhile, open interest at this strike climbed by 2,512 contracts overnight, indicating that a large portion of the volume was made up of newly initiated positions. This option is now home to peak call open interest of 16,253 contracts. By selling these calls to open, speculators are counting on the stock to remain below the $10 mark through April expiration.

From a shorter-term perspective, ONNN's bullish bets appear to be favored over bearish of late. The Schaeffer's put/call volume ratio (SOIR) sits at 0.28, confirming that calls more than triple puts among options set to expire within three months. This ratio ranks in only the 11th percentile of its annual range, which means that near-term options players have been more optimistically aligned toward the stock just 11% of the time during the past 12 months.

Technically speaking, the equity has gained more than 22% year-to-date, and has outpaced the broader S&P 500 Index (SPX) by over 13% during the past 60 sessions. What's more, the stock is poised to close a second consecutive week atop its 50-week moving average, a trendline that has been largely out of reach since mid-July.

At last look, ONNN remains nearly flat with Thursday's close of $9.50.


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