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Speculation Spikes as ON Semiconductor Struggles

Chip stock ONNN sees unusually heavy call volume

by 10/17/2012 11:42 AM
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Calls are unusually active today on ON Semiconductor Corp. (NASDAQ:ONNN - 6.24), with roughly 11,000 contracts changing hands so far -- way above the chip stock's average daily call activity of 468 contracts. Meanwhile, only 141 puts have been traded on ONNN.

Most of the action is taking place at the equity's January 2013 7.50-strike call, where 10,145 contracts have been traded. Nearly all of these out-of-the-money calls crossed the tape at the ask, with the volume-weighted average price (VWAP) arriving at $0.22. Implied volatility on the January 7.50 call is up 8 percentage points to 51.2%, pointing to increased demand, and data from the International Securities Exchange (ISE) confirms that a significant chunk of the volume here consists of freshly bought-to-open contracts.

Given the VWAP of $0.22, these ONNN call buyers will begin to profit if the stock rises above breakeven at $7.72 by the time January-dated options expire.

Today's interest in bullishly slanted options is a change from the recent trend for ONNN. During the past 10 days, speculators on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.30 puts for every call on the shares. This ratio arrives in the 88th percentile of its annual range, suggesting that traders have been opting for puts over calls at an accelerated pace lately.

On the charts, ONNN is down nearly 19% year-to-date, with the stock staring up at familiar resistance from its 10-week and 20-week moving averages.

 Weekly Chart of ONNN since January 2012 With 10-Week and 20-Week Moving Averages

Looking ahead, the tech concern is due to report its third-quarter results after the market closes on Thursday, Nov. 1, with analysts predicting a profit of 14 cents per share. ONNN is fractionally lower in today's trading after a coolly received earnings report from sector giant Intel (INTC).


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