Ambarella Inc (AMBA) Options Traders Eye An Extended Rally

Options traders are betting on Ambarella Inc (NASDAQ:AMBA) to top the $60 level within a month

Jul 19, 2016 at 11:46 AM
facebook twitter linkedin


Semiconductor stock Ambarella Inc (NASDAQ:AMBA) has slowly been climbing higher for several weeks, outpacing the broader S&P 500 Index (SPX) by roughly 41 percentage points during the past two months. This technical performance has resulted in a fresh wave of bullish betting from options traders. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, AMBA has posted a 10-day call/put volume ratio of 3.66, which ranks in the 94th annual percentile, illustrating a stronger-than-usual appetite for calls

Taking a closer look at this two-week time period, the August 60 call was one of the most popular options, going by open interest increases. Data from the major options exchanges reveals mostly buy-to-open activity taking place here, much of it occurring during Monday's session -- when AMBA shares rose 4.4%. By buying to open the out-of-the-money options, these AMBA traders are betting on the stock taking out the round-number $60 mark by the close on Friday, Aug. 19, when front-month contracts expire. 

Interestingly, it appears to be a prime time to buy short-term AMBA options. For one, the stock's 30-day at-the-money (ATM) implied volatility (IV) of 41.7% sits in just the 1st percentile of its annual range. Plus, AMBA's Schaeffer's Volatility Index (SVI) of 42% ranks below 99% of the past year's readings, meaning the options market is pricing in historically low volatility expectations. 

As optimism appears to be building in the options pits, short interest on AMBA has been falling consistently for months. Since peaking at an all-time high last December, this figure has declined by 41%. However, these bears still control a brow-raising 25% of AMBA's float, which would take them eight sessions to buy back, at the stock's average daily volumes. It would seem there's ample sideline cash available to power additional gains going forward. 

Elsewhere, analysts have kept an upbeat view. Eight of 12 brokerage firms recommend buying AMBA, and none consider it a "sell." However, the stock is currently trading right in line with its average 12-month price target of $57.63, suggesting potential for price-target hikes. 

Looking closer at Ambarella Inc's (NASDAQ:AMBA) chart, the shares remain far removed from their record high of $129.19 from roughly a year ago, but as mentioned, have bounced back nicely since bottoming near $33 in February. At last check, AMBA was trading at $57.16, putting the stock just above its year-to-date breakeven mark. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners