Takeover Chatter Sparks Fire Under SanDisk Corporation (SNDK) Bulls

SanDisk Corporation (NASDAQ:SNDK) calls are trading at three times what's typically seen at this point in the day

Sep 21, 2015 at 1:23 PM
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Call players are flooding SanDisk Corporation's (NASDAQ:SNDK) options pits today, with the contracts crossing at three times the average intraday rate -- and outpacing puts by a nearly 10-to-1 ratio. In fact, each of the equity's 10 most active options is of the call variety, with a number of speculators targeting SNDK's weekly 9/25 series.

Drilling down, the weekly 9/25 53-strike call has seen the most action, where it seems safe to assume new positions are being purchased for a volume-weighted average price of $1.13. In other words, breakeven for today's call buyers is $54.13 (strike plus VWAP). Profit will accumulate north of here, while losses are limited to the initial premium paid.

Today's accelerated call activity is just more of the same in SNDK's options arena. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day call/put volume ratio of 1.85 ranks in the 98th annual percentile. Simply stated, calls have been bought to open over puts at a faster clip just 2% of the time within the past year.

This optimism is witnessed elsewhere on the Street, as well. In fact, more than half of analysts covering the shares maintain a "buy" or better recommendation, while the average 12-month price target of $65.32 stands at a 23% premium to SNDK's current price. Overnight, Barclays took the road less traveled, and initiated coverage on the stock with a lackluster "equal-weight" rating and $60 price target.

Such upbeat sentiment toward a stock that's struggled on the charts is surprising -- and could have bearish implications down the road. Specifically, although the equity is up 1% today at $53.24 amid unconfirmed buyout buzz -- a similar fate for streaming name Pandora Media Inc (NYSE:P) -- and broad-market tailwinds, SanDisk Corporation (NASDAQ:SNDK) is still staring up at a 46% year-to-date deficit. What's more, a rally attempt off an Aug. 24 two-year low of $44.28 was quickly halted by the equity's 60-day moving average. Should the shares resume their downtrend, a capitulation among option bulls and/or a round of negative analyst attention could translate into a fresh wave of selling pressure.


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