Bulls Take Aim at Booming Ambarella, Inc. (AMBA)

Ambarella Inc (AMBA) hit an all-time high thanks to a price-target hike, and now calls are accelerated

by Josh Selway

Published on May 27, 2015 at 11:15 AM
Updated on May 27, 2015 at 11:21 AM

Video processing firm Ambarella Inc (NASDAQ:AMBA) is enjoying a 1.6% lift today to trade at $88.56 -- and earlier hit a record high of $90.77 -- after Pacific Crest upped its price target to $96 from $78. Option bulls have taken notice, as calls are being exchanged at three times the expected mid-morning pace.

Many traders are taking a short-term approach, with contracts from the weekly 5/29 and 6/5 series seeing heavy action. Two options potentially experiencing buy-to-open activity are the weekly 5/29 94-strike call, and the weekly 6/5 90-strike call, as traders bet on AMBA to take out the strikes by the respective expiration dates, before the close this Friday, and next Friday. It's worth noting that the company is scheduled to report first-quarter earnings after the close next Tuesday, June 2.

Call buying isn't unusual in the equity's options pits. Over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.84 calls have been purchased to open for every put. However, almost 26% of AMBA's float is sold short, which would take close to eight sessions to repurchase, at average daily volumes. Therefore, it's possible some of the recent call buying is the work of short sellers hedging against additional upside.

Switching directions, the analyst community is split on the stock. Five brokerage firms say it's a "strong buy," while five others say it's a "hold" or worse. Also, AMBA's consensus 12-month price target sits at $73.45, a substantial discount to current levels.

It could be that analysts just haven't been able to keep up with the red-hot stock. Month-to-date, Ambarella Inc (NASDAQ:AMBA) has added 21%. However, the security's 14-day Relative Strength Index (RSI) is docked at 71, marking a foray into overbought territory.

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