Analysts, Options Traders Turn Bearish Ahead of Ambarella Earnings

Ambarella Inc (NASDAQ:AMBA) reports earnings after the close on Tuesday, and options activity has been bearish

Josh Selway
Feb 27, 2017 at 10:50 AM
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Chip stock Ambarella Inc (NASDAQ:AMBA) will be in the earnings spotlight after the close tomorrow, and the shares have struggled after recent quarterly reports. In fact, AMBA has only moved higher in the session after earnings once in the past six quarters, with an average one-day swing of 7.7% in either direction. Ahead of the earnings release, the options market is pricing in a much bigger move of 11.7% for Wednesday's session, while options traders have been buying puts more quickly than normal.

To be more specific, the stock has a 10-day put/call volume ratio of 0.90 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Although this ratio shows calls have the edge on an absolute basis, it ranks above 75% of all similar readings from the past year, indicating a bigger-than-usual appetite for long puts over calls. The March 55 put saw the largest increase in open interest during this time frame, and since data from the major exchanges confirms buy-to-open activity here, it's safe to assume traders are betting on AMBA shares dropping below $55 before the contracts expire at the close on Friday, March 17. 

Outside the options pits, sentiment is mixed. While short interest represents roughly 20% of the stock's float, 70% of covering brokerage firms recommend buying AMBA, with zero "sell" ratings to be found. However, optimism may be fading, as Morgan Stanley overnight became the second brokerage firm this month to lower its price target to $70. 

Taking a look at the technicals, there may be cause for concern. While AMBA has rallied hard in recent weeks -- outpacing the S&P 500 Index (SPX) by almost 14 percentage points in the past 20 days -- it is now struggling to overcome the round $60 level. This area is reinforced by the shares' 160-day moving average. Not to mention, the stock's recent push higher has put it in overbought territory, with AMBA's 14-day Relative Strength Index (RSI) sitting at 70 as of Friday's close. 

Regardless, options traders may want to consider Ambarella Inc (NASDAQ:AMBA) at the moment, because premium on near-term contracts is rather inexpensive. This is according to the equity's Schaeffer's Volatility Index (SVI) of 50%, which sits below 70% of all other readings from the past year. At last check, AMBA stock was trading 1% higher at $59.31. 

AMBA stock chart

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