Volatile Day Sparks Rush Toward Ambarella Inc (AMBA) Puts

Ambarella Inc (NASDAQ:AMBA) plunged 21% at the open, but has since pared a considerable amount of these earlier losses

by Karee Venema

Published on Aug 24, 2015 at 2:56 PM
Updated on Jun 24, 2020 at 10:16 AM

Ambarella Inc (NASDAQ:AMBA) plunged 21% at the open, but found a foothold atop its 200-day moving average -- a trendline not breached on a daily closing basis since June 2014. The stock has since pared a significant portion of these losses, and was last seen down 1.4% at $88.54. Nevertheless, the equity remains on the short-sale restricted list from Friday's sharp tumble, and put players are champing at the bit for AMBA to dig itself a deeper hole.

Specifically, put volume has popped to 1.6 times what's typically seen at this point in the day, and AMBA's weekly 8/28 70 strike has garnered notable attention. By all accounts, new positions are being purchased here for a volume-weighted average price (VWAP) of $0.92. Breakeven for the put buyers is $69.08 (strike less VWAP) -- an area not seen by AMBA since April 28.

Widening the sentiment scope reveals today's accelerated put volume is just par for the course in AMBA's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.07 ranks in the 91st annual percentile. Simply stated, puts have been bought to open over calls at a faster clip just 9% of the time within the past year.

Those purchasing AMBA's short-term options are willing to pay a pretty penny, too, per its Schaeffer's Volatility Index (SVI) of 91% -- which rests above all comparable readings taken in the past year. In other words, the security's front-month options are currently pricing in the highest volatility expectations of the last 12 months. Echoing this uncertainty is AMBA's 30-day at-the-money implied volatility, which topped out at an annual peak of 95.7% earlier.

Outside of the options pits, sentiment is mixed. For starters, short interest surged 11.8% in the latest reporting period, and now accounts for more than 29% of AMBA's available float. Elsewhere, six out of 11 analysts maintain a "strong buy" recommendation, versus five "holds," while the average 12-month price target of $105.45 stands at a 20% premium to the stock's present price.

Looking ahead, Ambarella Inc (NASDAQ:AMBA) could see some more volatility after it steps into the earnings confessional one week from tomorrow. Over the past eight quarters, AMBA has averaged a single-session post-earnings move of 4.5%, but this time around, the security's near-term at-the-money straddle is pricing in a big 18.5% swing.

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