History Says ON Semiconductor Stock's Red-Hot Rally Could Have Legs

Short sellers continue to pile on

Feb 10, 2021 at 2:52 PM
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Arizona-based chipmaker ON Semiconductor Corp (NASDAQ:ON) has cast a wide net with its products, providing custom chips & sensors for image stabilization in the auto, industrial, wireless, medical, and aerospace markets. The stock is breaking out of a flag-like pattern, bouncing off support at its +10% year-to-date level in the last week. The shares recently tested their 40-day moving average and rallied, a historically bullish trendline.

ON Feb 10

Short sellers continue to pile on, up 18% in the two most recent reporting periods. The 34.89 million shares sold short accounts for a healthy 8.6% of ON's total available float, and nearly a weeks' worth of buying power, at the stock's average pace of trading.  

Looking toward options, the stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.27, which sits higher than 94% of readings from the past year. In plain words, short-term option traders have rarely been more put-biased, and an unwinding of this bearish attention could push the equity even higher. Plus, ON's SOIR that is sitting above 1.0, has typically pre-dated large price appreciation.

The good news for options traders is that the equity's SVS sits at 82 out of 100, indicating ON has surpassed option traders' volatility expectations during the past year. Our recommended call has a leverage ratio of 5.8, and will double in value on a rise of 16.5% in the underlying security.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this ON commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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