Options Traders Pile On Universal Display Amid iPhone Buzz

OLED stock gapped higher out of the gate today

Managing Editor
May 29, 2018 at 10:32 AM
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Universal Display Corporation (NASDAQ:OLED) stock is up 10.6% to trade at $110.25 -- one of the best stocks on the Nasdaq in early trading -- amid reports that Apple (AAPL) will be ditching LCD screens and use OLED screens for the upcoming iPhone in 2019. Currently, only the iPhone X has an OLED screen. As a result, Universal Display call options are flying off the shelves.

Universal Display stock has struggled mightily in 2018, shedding 42% and falling to an annual low of $86.85 on April 26. However, thanks to today's burst and an earnings bump earlier this month, OLED stock has gained 25% in May, and is on track to close above its 80-day moving average for a second straight day -- something we haven't seen since late January, when the shares were flirting with new highs.

Options traders have piled on the Apple supplier in early trading. At last check, over 12,000 call options have changed hands -- a whopping 12 times the average intraday volume and pacing for the 100th annual percentile. New positions are being initiated at the stock's June 115 call, while the June 110 call is most active, with more than 2,000 contracts exchanged.

Today's appetite for calls merely echoes the growing trend. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security with a 10-day call/put volume ratio of 3.44, which ranks in the 86th percentile of its annual range. This indicates not only that bought OLED calls have more than tripled puts in the past 10 days, but such a preference for calls over puts is pretty rare.

Echoing this, OLED's Schaeffer's put/call open interest ratio (SOIR) of 0.36 ranks in the bottom percentile of its annual range. In other words, speculative players have rarely been more heavily skewed toward calls over puts, looking at options that expire in the next three months.

However, the recent affinity for long calls -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge. Short interest has more than doubled since its February lows, and the 6.1 million shares sold short represents a healthy 13.5% of OLED's total available float. At the security's average pace of trading, it would take nearly a week for shorts to cover their positions. A continued surge could shake some of the weaker bearish hands loose, creating even bigger tailwinds for the security.

Whatever the motive, it's worth noting that OLED sports a Schaeffer's Volatility Scorecard (SVS) of 88 out of 100. This means the equity has tended to register bigger price swings than its options premiums have priced in over the past 12 months.


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