Universal Display Corporation (OLED) Calls Catch Fire on Possible Apple Snub

Universal Display Corporation (OLED) dropped hard this morning on news Apple Inc. (AAPL) may be looking at other screen suppliers

by Kirra Fedyszyn

Published on Sep 30, 2016 at 2:48 PM
Updated on Oct 14, 2016 at 4:55 PM

Universal Display Corporation (NASDAQ:OLED) slid more than 8% shortly after the open on reports Apple Inc. (NASDAQ:AAPL) may be looking to diversify its pool of suppliers, and is in talks with Japan-based Sharp Corp.* to make organic LED displays for its next generation of devices. OLED quickly bounced back, however, clawing its way into positive territory amid a broad-market rally, last seen up 1.3% at $55.97. Meanwhile, call volume has spiked in the stock's options pits.

Specifically, OLED calls are trading at four times the average rate for this point in the day, with call volume on pace to close in the 96th percentile of its annual range. Headlining today's action is the March series, where traders have targeted the 65, 70, and 75 calls, with some likely buy-to-open activity spotted at each. Call buyers will profit if OLED can rally beyond the strike prices by the options' expiration, on Friday, March 17, 2017.

While it's possible these are "vanilla" call buyers -- after all, OLED was trading just shy of the $75 level as recently as early August -- it's also conceivable that some buyers of these out-of-the-money calls may be short sellers looking to hedge. Short interest on OLED ticked 6% higher during the most recent reporting period, and now represents 7.6% of the stock's available float. At OLED's typical pace of trading, it would take more than a week to cover all those bearish bets.

But a preference for calls is nothing new for OLED. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have purchased more than six of the stock's calls for every put over the past 10 weeks. The resulting call/put volume ratio of 6.29 sits in the slightly elevated 62nd percentile of its 12-month range.

From a technical standpoint, it's easy to see why some bulls may be betting on a comeback. It's been just two months since Universal Display Corporation (NASDAQ:OLED) hit an all-time high of $74.39. And the shares are sitting on an impressive 70% year-over-year lead. Still, OLED gave up a key foothold at its 200-day moving average earlier this week. Plus, the shares are set to close below the corresponding 40-week moving average for the first time since February.

*Editor's Note: OLED is in a relationship with Samsung -- a current AAPL partner -- and as a Cowen & Co analyst explained, "Since Sharp is not yet under a long-term commercial contract with OLED, some investors may misunderstand this as a new competitor. We expect Sharp/Foxconn will sign a long-term contract once they are ready to begin mass production."

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