Option Bears Circle Apple Suppliers Skyworks Solutions Inc and Avago Technologies Ltd

SWKS and AVGO are attracting option bears after partner AAPL's lackluster earnings

by Kirra Fedyszyn

Published on Jan 27, 2016 at 12:53 PM
Updated on Jun 24, 2020 at 10:16 AM

Tech blue chip Apple Inc. (NASDAQ:AAPL) is down 4.8% at $95.19, after the company reported disappointing iPhone sales and forecast a drop in revenue. As such, several Apple suppliers have been suffering in its wake. Today we'll check in with Skyworks Solutions Inc (NASDAQ:SWKS) and Avago Technologies Ltd (NASDAQ:AVGO), which have seen accelerated put activity today.

SWKS
 -- which is preparing to report earnings after the close tomorrow -- has been slumping on the charts since hitting an all-time high of $112.88 last June, and was last seen trading 2% lower at $64.47, after Citigroup slashed its price target on the stock for the second time this month -- to $78 from $98. SWKS has given up 16.1% so far in 2016, and touched an annual low of $58.50 a week ago, as AAPL concerns have weighed heavily on the shares. 

Today, traders are taking to the options pits, where SWKS puts are trading at twice their average intraday rate. Puts are outnumbering calls with a ratio of 1.20 -- higher than 91% of the past year's readings. The most active option by a mile is the weekly 1/29 57-strike put, where more than 3,300 contracts have changed hands. Buy-to-open activity has been spotted at this strike, meaning traders are targeting a breach of $57 -- in new-low territory -- by the end of the day Friday, when the weekly option expires.

It also appears option traders are pricing in a one-day post-earnings swing of 11% -- greater than SWKS' average one-day move of 5.6% over the last eight quarters -- per the stock's weekly 1/29 64-strike straddle. However, while seven of those earnings reactions were to the upside, option buyers have been ramping up their bearish bets lately.

Specifically, SWKS option traders have bought to open just 0.75 puts for each call during the last 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). But this ratio is still higher than 81% of all comparable readings from the last 12 months. It's also worth noting that, despite Skyworks Solutions Inc's (NASDAQ:SWKS) weak performance in recent months, every analyst providing coverage still rates the equity a "buy" or better -- leaving the stock vulnerable to post-earnings downgrades, should results fall short of expectations.

AVGO has also been taking a hit alongside AAPL recently, though the security has found a familiar foothold in the $115-$120 region, home to its ascending 320-day trendline. The shares were last seen at $124.05, down just 0.3% after AAPL's dreary report.

AVGO puts are trading at nearly twice their typical intraday rate today, with possible buy-to-open action at the weekly 2/26 100-strike put. Traders buying the puts to open are either expecting AVGO to sink into double-digit territory in the next month, or they're buying options insurance to protect their AVGO shares

Despite the equity outperforming the S&P 500 Index (SPX) by nearly 14 percentage points over the last three months, option traders are approaching a bearish extreme. At the ISE, CBOE, and PHLX, AVGO's 10-day put/call volume ratio of 2.46 is in the top percentile of its annual range. Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) is at an annual high of 1.14, suggesting near-term traders haven't been this put-biased during the past year.

Short sellers have been targeting the stock, too -- 10% of Avago Technologies Ltd's (NASDAQ:AVGO) available float is now tied up in short interest, representing about 12 days' of trading, at AVGO's average daily volume. Should AVGO resume its long-term uptrend, a mass exodus of option bulls or a short squeeze could translate into added tailwinds.

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