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Trading Strategies: OmniVision Technologies


Sell the OmniVision September 15-14 put spread for $.40 credit.

MINYANVILLE ORIGINAL OmniVision Technologies, Inc. (OVTI) develops advanced digital imaging solutions. The company's main product -- image-sensing camera chips -- can be found in many of today's consumer and commercial applications, including mobile phones, notebooks, netbooks, and webcams. Other applications of the technology are found in security and surveillance, automotive, and medical imaging systems.

Demand for OmniVision image sensors for use in mobile phones account for a substantial portion of the company's revenue in fiscal 2012, which may align revenues with phone sales. More markets that include embedded imaging solutions in notebooks, tablets, and webcams are developing. OmniVision sells directly to camera device manufacturers and contract manufacturers. LG Innotek Co., which is traded on the Korea stock exchange, accounted for 15.2% of revenues.

The second largest revenue maker for OmniVision is World Peace Industrial Co., Ltd., which distributes electronic products in Asia, accounts for over 10% of revenues. Sales inside of the US were less than 1.0% in fiscal 2010, but were up to about 7.0% as of its last earnings call. The third quarter earnings call is scheduled for today at 5 p.m. EDT. However, sales do not always account for distribution.

In 2011, it was rumored that OmniVision had lost a contract with Apple (AAPL), which hurt investments. The company reduced guidance for 2012 until it was revealed that OmniVision supplies the front and rear camera sensors for the new iPad. Some sources say it is likely that it will supply front and back camera sensors for the iPhone 5.

OmniVision is about 16% short interest. The company is expecting about $0.22 EPS with revenues for the quarter of $244 million. The trailing twelve months EPS is at $1.56 with a multiple of about ten. At-the-money straddles are at about $2.45 or a 15% move. The at-the-money straddles and out-of-the-money strangle average is equal to $2 or a 13% move.

My Trade: Selling the OmniVision September 15-14 Put Spread for $.40 credit
Risk: $60 per 1 lot
Reward: $40 per 1 lot
Notes: OmniVision is in a six-week long bull channel and I think it will bought on any sell-off.

OmniVision might get a bounce off the 100- and 200-day moving average of $15 -- but if it sells off under that, it could under that level -- and I would want to be out of the trade.
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