Puts Pop On Perpetual Takeover Target SanDisk (SNDK)

SanDisk Corporation (SNDK) traders are gambling on a pullback

Apr 9, 2015 at 2:46 PM
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SanDisk Corporation (NASDAQ:SNDK) -- already deemed a ripe takeover target by analysts earlier this week -- is 2.4% higher to $70.54, after deep-pocketed Intel Corporation (NASDAQ:INTC) abandoned its pursuit of Altera Corporation (NASDAQ:ALTR). However, ahead of earnings next week, put activity in SNDK's options pits is ramping up, with some traders gambling on short-term downside for the security.

Puts are moving at nearly double the average intraday rate, with the April 72 put coming in as the day's most active contract. It appears some traders are buying the put to open at a volume-weighted average price (VWAP) of $2.99, and will profit if SNDK falls beneath $69.01 (strike minus VWAP) by the close on Friday, April 17 -- when front-month options expire, and just two days after the company's first-quarter earnings release.

Today's appetite for puts runs opposite to recent sentiment in the options pits. Specifically, over the past 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.51 SNDK calls have been bought to open for every put -- a higher ratio than 79% of all equivalent readings taken over the past year. On the charts, SNDK has been a technical laggard, with the shares down 28% year-to-date. What's more, they touched an annual low of $63 on April 1. Should today's upside momentum fizzle, or should SNDK report disappointing earnings next week, a mass exodus of option bulls could translate into headwinds.

Short sellers have had their eyes on SNDK as well, as short interest has increased over the last two reporting periods. It now accounts for 7.7% of the security's available float, which would take nearly four sessions to cover, at average trading volumes.

Looking elsewhere, in the session immediately following its last four earnings reports, SanDisk Corporation (NASDAQ:SNDK) has lost an average of 2.3%, including a 13.6% dip last July. Traders are paying historically inflated prices for their near-term bets on the stock, as its Schaeffer's Volatility Index (SVI) of 56% stands in the 89th percentile of its annual range.

Daily Chart of SNDK Since October 2014

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