Options Traders Open Their Wallets for Ambarella Inc (AMBA)

Ambarella Inc (NASDAQ:AMBA) call options are hot as the stock trades higher

Apr 13, 2016 at 12:03 PM
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After a dreadful second half performance in 2015 that saw the shares fall from triple-digit territory to $55, chipmaker Ambarella Inc (NASDAQ:AMBA) hasn't had much better luck in 2016. The shares have fallen nearly 20% year-to-date, while the company lowered its current-quarter revenue outlook last month. It's a different story today, as AMBA has rallied 6.6% to $44.74, and options traders are betting on more gains in the near term for the stock. 

AMBA call options are trading at seven times the average intraday volume, outpacing puts by a roughly 16-to-1 margin. Accounting for over half of the call volume today is the weekly 5/6 46-strike call, thanks to blocks of 2,510, 2,500, and 1,000 contracts that were bought to open this morning within five minutes of each other. Assuming this is all the work of one trader, the total cash outlay for this bet is roughly $900,000 (premium paid * number of contracts * 100 shares per contract ). The goal is for AMBA to topple $46 before the weeklies expire at the close on Friday, May 6. 

Elsewhere, the stock's April 43.50 and 44.50 calls are also popular. It appears traders are buying to open positions, betting on extended gains from AMBA before front-month options expire at the end of this week.

This mad rush for AMBA call options isn't unusual, though. The stock boasts a 50-day call/put volume ratio of 1.63 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This reading tops 86% of all others in the past 12 months, indicating a greater-than-usual appetite for long calls over puts. 

At the same time, AMBA is extremely popular among short sellers, so call options may have been purchased to hedge against an unexpected upside move. In fact, 37% of the stock's float is controlled by short sellers, translating to more than seven days of pent-up buying power, at average daily volumes. This pessimism appears to be unraveling, though, as short interest on AMBA has been moving lower since it peaked back in December. AMBA may be worth monitoring in the weeks ahead, as there's still plenty of sideline cash to fuel a short-squeeze. 

Today, chances are that Ambarella Inc (NASDAQ:AMBA) is moving in unison with business partner GoPro Inc (NASDAQ:GPRO), which is also seeing heavy call activity today. No matter the reason, AMBA has crossed back over its 80-day moving average, a trendline that's been pressuring the shares lower in recent months. 

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