Struggling Apple Supplier May Have Found Near-Term Bottom

OLED stock formed a death cross last month, but is testing potential support

by Patrick Martin

Published on Apr 9, 2018 at 12:30 PM
Updated on Jun 24, 2020 at 10:16 AM

iPhone supplier Universal Display Corporation (NASDAQ;OLED) has had a disastrous start to 2018, due to the broader stock market correction and an earnings miss in February, not to mention reports last month that Apple Inc. (NASDAQ:AAPL) is developing its own LED screens. Despite OLED stock's struggles, there is some indication that the chip stock may have reached a tradable bottom.

Universal Display stock recently found itself on an extended list of stocks that have recently made a death cross, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. A death cross is typically viewed as a bearish signal that occurs when a short-term moving average crosses below a longer-term moving average. In this case, OLED's 50-day moving average crossed with its 200-day moving average on March 29. 

However, OLED stock is now perched above its 24-month moving average, and could find round-number support in the $100 area, which is also in the vicinity of a May bull gap. At last check, the security was up 2.1% to trade at $100.35.

OLED Year Stock Chart

 

In light of Universal Display stock's recent struggles, options buyers are unsurprisingly skeptical. OLED sports a 10-day put/call volume ratio of 0.67 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). While this ratio indicates that long calls still outnumber puts on an absolute basis, it registers in the 95th percentile of its annual range, meaning puts have been bought to open relative to calls at a faster-than-usual clip.

Digging deeper, the May 95 put has one of the largest increases in open interest during this time frame. There has been a mixture of buy-to-open and sell-to-open activity at this strike. Those buying the puts are banking on a continued downward spiral from OLED, while those writing the puts believe the stock has hit a near-term bottom and will stay north of $95 through the next month or so.

Finally, it's worth noting the security has been good to premium buyers in the past year. The stock's Schaeffer's Volatility Scorecard (SVS) comes in at 90 out of 100. That means OLED stock has exceeded options traders' volatility expectations during the past 12 months.


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