Shares of fiber-optic network component producer Applied Optoelectronics Inc (NASDAQ:AAOI) are up 2.2% to trade at $34.54, after Cowen and Company raised its price target to $55 from $53. The analyst in coverage waxed bullishly on the Facebook supplier's 100G data center transceivers, and thinks "most investors continue to underestimate AAOI's ability to compete effectively and to drive profitable growth."
The new price target represents a 59% premium to the stock's current perch, and a level AAOI has not traded above since a mid-October bear gap. The stock has had a choppy summer -- rallying all the way up to familiar resistance in the $48-$50 range in June and July, before tumbling to a four-month low below $32 earlier this month. Overall, the equity has given back 8.7% in 2018.
Shorts have been heading for the exits, and any extended uptrend could encourage more bearish bettors to buy back their shares. Short interest fell by 26% in the most recent reporting period, yet the 6.80 million shares sold short still represents a whopping 40% of AAOI's total available float, or nine times the average daily trading volume.
Options traders have been almost exclusively targeting AAOI calls. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of 5.78, which ranks in the 95th annual percentile. This shows the rate of call buying relative to put buying has been quicker than usual.
While some of this activity could be at the hands of shorts hedging against any upside rise, the good news for any those purchasing premium is that near-term options are attractively priced right now, from a volatility perspective. This is based on AAOI's Schaeffer's Volatility Index (SVI) of 54%, which arrives in the 10th percentile of its annual range.