Analyst: Sell This Optics Stock

ACIA shorts may be hedging with call options

Mar 27, 2019 at 2:12 PM
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Morgan Stanley chimed in on optical makers today. While the brokerage firm waxed optimistically on Lumentum (LITE), it struck a decidedly tone with Acacia Communications, Inc. (NASDAQ:ACIA). Specifically, the brokerage firm downgraded ACIA stock to "underweight" from "equal weight" on customer concentration risk next year, but boosted its price target to $44 from $38 -- noting upbeat expectations for 2019 financial results.

Most analysts are still bullish on Acacia Communications, with six of the nine in coverage maintaining a "strong buy" rating on the stock. However, the average 12-month price target of $54.42 is a discount to ACIA stock's current price, down 2.2% so far today to trade at $54.90.

Options traders, meanwhile, have bought to open calls over puts at a quicker-than-expected pace, albeit amid relatively low absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ACIA's 10-day call/put volume ratio of 9.77 ranks in the 90th annual percentile.

Some of this call buying could be at the hands of shorts hedging against any additional upside risk. Short interest on Acacia Communications rose 3.7% in the most recent reporting period to 1.84 million shares -- coming off an 18-month low in the Feb. 15 reporting period -- and now accounts for a healthy 5.5% of the equity's available float.

On the charts, ACIA shares bounced in late December right at $36 -- near their pre-bear gap highs from July. The stock is up 52% since then, and hit a nearly two-year high of $58.55 on March 21. Today's decline is finding support at the equity's 30-day moving average, while just below here is $52 -- a short-term floor following the security's Feb. 22 bull gap.

acia stock daily chart march 27

 

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