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OmniVision Technologies Shorts Hedge Their Bets Before Earnings

OVTI's January 2013 19-strike call was popular in Tuesday's trading

by 11/28/2012 10:31 AM
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Calls have been flying off the shelves on OmniVision Technologies, Inc. (NASDAQ:OVTI - 15.11) in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, over the course of the past 10 sessions, traders have bought to open 27.66 calls for every put. What's more, this call/put volume ratio ranks higher than 92% of other such readings taken in the past year, suggesting calls have been scooped up over puts at a near annual-high clip of late.

This trend is echoed in OVTI's falling Schaeffer's put/call open interest ratio (SOIR). Since Nov. 19, the stock's SOIR has dropped to 0.44 from 0.61, as near-term call open interest jumped 56%. This ratio now ranks in the 10th percentile of its annual range, indicating short-term speculators have rarely been more call-heavy toward OVTI.

Option traders' campaign for calls continued in yesterday's session. Roughly 12,000 contracts crossed the tape, or more than four times the average daily volume for call options. Meanwhile, fewer than 2,500 puts were traded. The day's most-active strike was the January 2013 19 call, which saw around 2,450 contracts change hands. The majority crossed at the ask price, implied volatility ticked higher, and open interest rose overnight -- all indications of buy-to-open activity.

By purchasing these out-of-the-money calls, traders will profit with each step north of $19.53 (the strike plus the volume-weighted average price of $0.53) OVTI takes through January expiration. This represents a stiff 29.3% premium to the equity's current price.

Technically, OVTI has had a respectable run on the charts. In addition to outperforming the broader S&P 500 Index (SPX) by more than 13 percentage points over the past two months, the stock has added a formidable 25% in 2012. However, in regard to the aforementioned January 2013 19-strike calls, OVTI has not experienced a daily close above the $19 mark since Apr. 26.

Given that yesterday's call players were honing in on this deep out-of-the-money strike, and the fact that short interest currently accounts for one-fifth of the stock's available float, this activity could represent short sellers hedging their bets ahead of earnings. The semiconductor concern is slated to unveil its quarterly results after tomorrow's close. The company has a mixed history in the earnings confessional, besting analysts' bottom-line expectations in two of the last four quarters. For OVTI's fiscal second quarter, Wall Street is calling for a profit of 31 cents per share.


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