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Illumina's Technical Prowess Doesn't Dissuade Bears

Bearish options players target ILMN's back-month puts

by 3/13/2012 1:30 PM
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Illumina, Inc. (ILMN - 50.32) has been the focus of some bearish attention today, as more than 8,000 puts have been exchanged so far, which is more than three times the norm. Most popular has been the near-the-money March 50 strike, where roughly 6,500 of these puts have been traded -- almost all of them at the ask price, suggesting they were bought. This option currently holds open interest of just 280 contracts, signaling a fresh batch of new positions. By purchasing these puts to open, speculators are counting on the stock to fall below $50 by the time front-month options expire this Friday.

Despite this rise in put volume, ILMN calls still seem to be favored over puts, as evidenced by the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio, which sits at 1.68 -- confirming that calls bought to open have comfortably outnumbered puts during the past couple of weeks. However, this ratio ranks in the 35th percentile of its annual range, which means that traders have been snapping up bullish options over bearish at a slower-than-usual pace.

Elsewhere, short interest on the biotech firm slipped by 3.27% during the last two reporting periods. Even so, these bearish plays still represent a hefty 21% of ILMN's float -- or more than two weeks' worth of pent-up buying pressure, at the stock's average pace of trading. In other words, short sellers seeking to hedge their bets could have contributed to some of the recent call volume.

ILMN has been a technical standout in 2012, having gained an impressive 65% so far this year, and besting the broader S&P 500 Index (SPX) by almost 63% during the last 60 sessions. On the charts, the stock continues to trade well above its 200-day moving average, thanks to a bullish gap related to a buyout bid by Roche Holding AG in mid-January. ILMN has since dismissed the bid as too low.

In the afternoon hours of the session, the stock is up about 0.3% to trade at $50.32.


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