Ambarella, Inc. (AMBA) Breakout Brings Option Bets

Ambarella Inc (AMBA) is hitting record highs, and option traders are rushing in

May 20, 2015 at 2:13 PM
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After a relatively quiet, range-bound April, video-capture concern Ambarella Inc (NASDAQ:AMBA) made some noise on the charts late last week. The shares burst through resistance in the $75-$80 region and haven't looked back. In fact, the equity was last seen 2.4% higher at $85.62, and earlier notched an all-time best of $85.96. What's more, AMBA options volume has exploded lately, and today is no exception. 

On Friday, AMBA calls traded at three times the average daily rate. On Monday and Tuesday, puts were notable, crossing at twice the typical clip. Today, both calls and puts are changing hands at accelerated rates, though the former have outnumbered the latter by a margin of roughly 2-to-1. 

It looks like short-term bulls are buying to open the weekly 5/22 85-strike call and the weekly 6/5 90-strike call -- the latter of which encompasses AMBA's earnings release on Tuesday, June 2. Buyers of the 85-strike calls expect AMBA to extend its quest for record highs through Friday's close, when the options expire. Buyers of the out-of-the-money (OOTM) 90-strike calls are either rolling the dice on a move north of $90 by the close on Friday, June 5, or they're insuring their shorted shares. Short interest accounts for more than a quarter of AMBA's total available float.

On the flip side, the equity's OOTM 5/29 82-strike put is most active today, with buy-to-open action spotted. By purchasing the puts to open, the buyers are either betting on AMBA to backpedal south of $82 by next Friday's close, when the options expire, or they're hedging their AMBA shares in the event of a short-term pullback. 

In fact, in the wake of the stock's upward momentum of late, its 14-day Relative Strength Index (RSI) is docked at 72 -- in overbought territory. In other words, a near-term breather could be in the cards for soaring AMBA. 

Whatever the motive, now is an opportune time to roll the dice with Ambarella Inc's (NASDAQ:AMBA) short-term contracts. The security's Schaeffer's Volatility Index (SVI) of 44% stands higher than just 16% of all other readings from the past year, suggesting AMBA's near-term options are attractively priced, relatively speaking. Likewise, the equity's 30-day at-the-money implied volatility sits at 45.6% -- just 8 percentage points from an annual low.


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