Loop Capital Sets Street-Low AAOI Price Target

Short sellers and options bears have targeted AAOI stock

Sep 27, 2018 at 10:06 AM
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Loop Capital downgraded Applied Optoelectronics Inc (NASDAQ:AAOI) to "sell" from "neutral," and slashed its price target by $25 to $20 -- the lowest on Wall Street -- a 36.2% discount to last night's close at $31.34. Unlike a recent bullish note from Cowen, this brokerage firm said the fiber optics component maker is facing product quality issues and pricing headwinds.

In reaction, AAOI stock is down 13.7% to trade at $27.05, breaching long-term support in the $30-$31 region -- which has served as a floor since a late-April bull gap. More broadly, the security is down 28.5% year-to-date, with all rally attempts stalling out near the round $50 mark, home to a mid-October bear gap.

Short sellers are likely cheering today's plunge, even with the stock landing on the short-sale restricted list out of the gate. Short interest on AAOI jumped 5.2% in the latest reporting period to 7.15 million shares -- representing 42.7% of the stock's available float, or five times the average daily pace of trading.

A number of options traders appear to be profiting on the Applied Optoelectronics stock slide. Data from Trade-Alert indicates the weekly 9/28 31-strike and 31.50-strike puts were bought to open yesterday for respective volume-weighted average prices (VWAPs) of $0.35 and $0.53. Today, the ask prices on those calls were last seen at $4.05 and $5.00, respectively.

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