Ambarella Inc (AMBA) Option Bulls Get Defensive After Citron Research Swipe

Citron Research issued a report earlier criticizing Jim Cramer's support of Ambarella Inc (AMBA)

Jul 29, 2015 at 2:02 PM
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Notorious short seller Citron Research earlier issued a report questioning semiconductor stock Ambarella Inc (NASDAQ:AMBA) -- namely, CNBC pundit Jim Cramer's optimistic outlook for it, an analysis the firm calls "sloppy." Since the document was released, Cramer has taken to Twitter to issue a number of replies, including:

AMBA traders have issued their own response, sending the shares down 1% to $118.04. However, the stock still remains 133% higher year-to-date -- and less than 10% off of its July 23 record high of $129.19.

In the options pits, meanwhile, bulls are betting on a quick bounce. In fact, calls are trading at 1.3 times the average intraday pace, and have a healthy lead over puts. Most active is AMBA's weekly 7/31 118-strike call, where all signs suggest new positions are being purchased for a volume-weighted average price (VWAP) of $2.61.

Based on this average entry price, breakeven for today's call buyers is $120.61 (strike plus VWAP). Profit will accrue on a move north of here, while losses are limited to the initial premium paid, should AMBA settle south of the strike at Friday's close -- when the weekly series expires.

Broadening the scope reveals put buyers have been active in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMBA's 50-day put/call volume ratio of 0.88 rests in the 80th percentile of its annual range. Simply stated, puts have been bought to open over calls at a quicker-than-usual step in recent months.

While it's possible some of the recent put buying -- particularly at out-of-the-money (OOTM) strikes -- could be a result of shareholders protecting paper profits, it's also a reasonable assumption that some of today's OOTM call buying is at the hands of short sellers hedging against an end-of-week rebound. Currently 26.3% of Ambarella Inc's (NASDAQ:AMBA) float is sold short.

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