Apple Supplier Downgraded Amid iPhone X Concerns

Short-term CRUS options are attractively priced right now

by Patrick Martin

Published on Jan 8, 2018 at 3:21 PM

Cirrus Logic, Inc. (NASDAQ:CRUS) stock was downgraded this morning by KeyBanc to "sector weight" from "overweight." The firm cited Apple (AAPL) as the reason for the downgrade, due to fears that the iPhone X sales may be "worse than expected." The news has CRUS stock down 0.5% today at $53.60. 

CRUS shares have lost 16% during the past six months, and fell to an annual low of $48.61 on Dec 6. A minor correction then ensued, although it was turned back by the security's 100-day moving average. This trendline provided stiff resistance during several November rally attempts.

Despite the equity's trouble on the charts, analysts have remained bullish. Six out of the 10 brokerage firms covering CRUS have issued "strong buy" or "buy" ratings. Furthermore, CRUS' average 12-month price target of $66.60 represents a more than 24% premium to the stock's current perch. More downgrades or a round of price-target cuts could be in store, which would result in even more headwinds.

In the options pits, put buying has been quite popular. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows CRUS with a 10-day put/call volume ratio of 4.12. This ratio ranks in the 99th percentile of its annual range, meaning long puts have been initiated over calls at a faster-than-usual clip.
It's a prime time to buy premium on near-term Cirrus Logic options, too. The equity's Schaeffer's Volatility Index (SVI) of 27% is lower than just 3% of all other readings from the past year, pointing to relatively attractive short-term option premiums amid muted volatility expectations.


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