Put players are flocking to ARM Holdings plc (ADR)
(NASDAQ:ARMH) in today's session, as the stock pulls back from multi-year high territory. Roughly 3,000 contracts have crossed the tape as of 1:09 p.m. EST, or nearly nine
times the average intraday pace for put options. As a point of comparison, just over 200 calls have traded. The lion's share of attention is centered around ARMH's April 39 put, which has seen more than 2,200 contracts trade. All of these have gone off at the ask price, and only 105 contracts currently make up open interest here, hinting at the initiation of new positions.
In order for these in-the-money puts to be profitable by April expiration, ARMH needs to drop 6.1% below its current price to breach the breakeven mark at $36.10 (the strike minus the volume-weighted average price [VWAP] of $2.90). Should the stock maintain its perch above this level over the next few months, the most the traders can lose is the initial net debit paid.
Today's trend in the options arena is a change of pace for speculators, who have been scooping up calls over puts at an accelerated clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open almost four calls for every put during the past 10 sessions. The resultant call/put volume ratio of 3.86 ranks higher than 72% of similar readings taken in the past year, suggesting a healthier-than-usual appetite for bullish bets over bearish throughout the last two weeks.
Technically, ARMH has been in a solid uptrend over the past six months, with the shares bouncing nearly 78% off their annual low of $21.64 -- which was tagged on July 17. What's more, the equity hit a 12-year high of $39.07 on Wednesday, Jan 2.
In light of this upward momentum, today's rush toward longer-term puts may be indicative of shareholders protecting their portfolios
against any additional pullbacks over the next three months. In fact, by recording the new technical milestone on Tuesday, the stock broke through its upper Bollinger Band, suggesting ARMH was treading in overbought waters.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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