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Analog Devices Traders Target More Downside

ADI skeptics scooped up October 38 puts

by 9/27/2012 10:15 AM
Stocks quoted in this article:

Like most of the broader equities market, Analog Devices, Inc. (NASDAQ:ADI - 39.10) spent the first part of the week wallowing in the red, giving up roughly 3% thus far. What's more, it appears the options crowd is gambling on an even steeper retreat for the tech concern, as evidenced by yesterday's healthier-than-usual appetite for ADI puts.

When all was said and done, ADI had seen around 1,800 puts cross the tape -- more than quadrupling its average daily put volume. For comparison, fewer than 350 ADI calls changed hands.

Digging deeper, we find that nearly all of the puts crossed in one fell swoop at the October 38 strike, with a block of 1,539 contracts traded at the ask price of $0.65. Considering open interest at the front-month strike skyrocketed overnight, we can assume the puts were bought to open.

By purchasing the puts to open, the buyers are expecting ADI to extend its recent pullback and breach the $38 level. More specifically, the aforementioned put buyer will profit if ADI retreats beneath the $37.35 level (strike minus premium paid) within the next few weeks.

However, yesterday's preference for ADI puts merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where the stock has racked up a 10-day put/call volume ratio of 16.51. Not only does this ratio indicate that traders have bought to open nearly 17 ADI puts for every call during the past two weeks, it also ranks in the 96th percentile of its annual range. In other words, option buyers are initiating bearish bets at a near annual-high clip.

In early trading, the shares of ADI are up 0.9% thanks to broad-market tailwinds, and are now hovering back atop the $39 level. Until yesterday, this region served as support, containing the stock's pullbacks since late July.

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