Call Volume Peaks on Ambarella Stock Ahead of Earnings

Sentiment looks bullish in AMBA's options pits

by Josh Selway

Published on Aug 30, 2017 at 3:07 PM

GoPro supplier Ambarella Inc (NASDAQ:AMBA) is scheduled to report earnings after the close on Thursday, and the stock's post-earnings history leaves much to be desired. Specifically, AMBA shares have closed lower in the session after earnings six of the last eight quarters, including a loss of 10.2% in June. Despite this fact, data shows a strong bullish bias among options traders. 

For starters, all 10 of the contracts on AMBA's top open positions list are calls, and call open interest is now at a 52-week high. Much of this activity has come within the past two weeks, as, again, the 10 largest changes in open interest all occurred on calls, with the October 55 and 60 strikes leading the way. As it stands now, Ambarella has a Schaeffer's put/call open interest ratio (SOIR) of 0.23, which is just 1 percentage point from a 12-month low, confirming a substantial call-skew among near-term options traders.

Aside from the two options mentioned above, the weekly 9/1 54- and 55-strike calls also saw notable increases in open interest during the past two weeks. Anyone buying to open these calls are betting on the chipmaker gaining on the charts by the end of the week, when they expire. 

There may be another explanation for the overwhelming bias for calls. That is, short interest represents 13.4% of the stock's float, equating to almost eight days' worth of buying power, based on average daily volumes. As such, short sellers could be using options to hedge against an upside move in the shares. And speaking of short interest, it's worth noting that short interest has seemingly bottomed on AMBA after declining for roughly a year and a half. 

Elsewhere, analysts have remained bullish on Ambarella stock. Six of nine covering brokerage firms still say to buy the equity, and its average 12-month price target of $64.22 represents a nearly 18% premium to current levels. Another post-earnings drop could result in bearish analyst attention. 

Turning to the charts, the shares have struggled over the past year, losing about one-fourth of their value to trade at $54.45. AMBA is now testing the closely watched 200-day moving average, which it just cleared for the first time in two months on Monday. 
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