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Speculation Spikes as ON Semiconductor Struggles

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Chip stock ON Semiconductor sees unusually heavy call volume.

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Calls were unusually active yesterday on ON Semiconductor Corp. (NASDAQ:ONNN) with roughly 11,000 contracts changing hands -- way above the chip stock's average daily call activity of 468 contracts. Meanwhile, only 141 puts were traded on ON Semiconductor.

Most of the action took place at the equity's January 2013 7.50-strike call, where 10,145 contracts were traded. Nearly all of these out-of-the-money calls crossed the tape at the ask, with the volume-weighted average price (VWAP) arriving at $0.22. Implied volatility on the January 7.50 call was up 8 percentage points to 51.2%, pointing to increased demand, and data from the International Securities Exchange (ISE) confirmed that a significant chunk of the volume consisted of freshly bought-to-open contracts.

Given the VWAP of $0.22, these ON Semiconductor call buyers will begin to profit if the stock rises above breakeven at $7.72 by the time January-dated options expire.

Yesterday's interest in bullishly slanted options is a change from the recent trend for ON Semi. During the past 10 days, speculators on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.30 puts for every call on the shares. This ratio arrives in the 88th percentile of its annual range, suggesting that traders have been opting for puts over calls at an accelerated pace lately.

On the charts, ON Semiconductor is down nearly 19% year-to-date, with the stock staring up at familiar resistance from its 10-week and 20-week moving averages.



Looking ahead, the tech concern is due to report its third-quarter results after the market closes on Thursday, Nov. 1, with analysts predicting a profit of $0.14 per share. ON Semiconductor closed at $6.15 yesterday after a coolly received earnings report from sector giant Intel (NASDAQ:INTC).

This article by Elizabeth Harrow was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
No positions in stocks mentioned.
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