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SanDisk Option Bulls Buy Weekly Calls

SNDK call buyers expect more upside this week

by 10/4/2012 1:05 PM
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The shares of SanDisk Corporation (NASDAQ:SNDK - 44.61) were last seen comfortably higher, and it looks like the options crowd is betting on even more short-term upside for the stock. Around midday, the tech concern has already seen roughly 17,000 calls cross the tape -- more than three times its average intraday call volume, and around four times the number of SNDK puts traded thus far.

Most active have been the weekly 44- and 44.50-strike calls, which have seen around 2,700 and 2,500 contracts change hands, respectively. The majority of the calls have crossed at the ask price, and volume has surpassed open interest at both strikes, signaling buy-to-open activity.

By buying the calls to open, the traders are anticipating more gains for SNDK between now and tomorrow's close. More specifically, the volume-weighted average price (VWAP) of the 44-strike calls is $0.57, indicating a breakeven level of $44.57 (strike plus VWAP). Meanwhile, the VWAP of the 44.50-strike calls is $0.33, meaning the buyers will reap a reward if SNDK topples the $44.83 level by the end of the week, when the options expire.

However, today's preference for calls is just more of the same for SNDK. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.6 calls for every put during the past two weeks. What's more, this ratio stands higher than 75% of all others of the past year, hinting at a healthier-than-usual appetite for bullish bets of late.

As a result, the security's Schaeffer's put/call open interest ratio (SOIR) rests at 0.77, indicating that near-term calls are more prevalent than puts. Plus, this ratio registers in the 18th percentile of its annual range, implying that short-term options players have rarely been more call-heavy during the past 12 months.

Echoing that optimism, the brokerage bunch has doled out 10 "strong buys" and four "buy" ratings on the stock, compared to nine lukewarm "holds" and just one "sell" rating. Furthermore, an afternoon Barron's article yesterday waxed optimistic on the equity. Specifically, RBC Capital chip analyst Doug Freedman "likes SanDisk for the prospect of gaining share in memory content" on Apple Inc.'s (NASDAQ:AAPL) iPhone 5. In fact, he estimates that "with about $83 per iPhone in chip content, the device could make up 4.6% of total global semiconductor sales" next year, depending on the volume of units sold.

At last check, SNDK has tacked on 2.3% to linger in the $44.61 region. The stock is now on pace to end atop both its 10-day and 20-day moving averages for the first time since Sept. 20. However, the shares could face an options-related speed bump in the $45-$46 neighborhood. The October 45 strike is home to peak call open interest in the front-month series, with more than 13,600 contracts outstanding. Plus, this region acted as support for SNDK in late 2011 and early 2012, and marks the site of the equity's bearish gap in early April.

Daily Chart of SNDK since October 2011 With 10-Day and 20-Day Moving Averages

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