Bearish strategy behind ON Semi

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ON Semiconductor attempted to rally today, but one trader poured cold water on that idea.

ONNN Chart optionMONSTER's tracking programs detected the sale of about 7,000 January 6 calls for $0.75 to $0.80. Volume was more than twice open interest the strike when the session began.

ONNN is down 1.41 percent to $6.30 in morning trading, having fallen 29 percent so far this year. The stock had inched higher by 1.4 percent early in the session before the call sellers stepped in.

Writing the call contracts obligates the trader to sell the shares for $6 on or before expiration. Given the premium received, that position will make money as long as ONNN remains below about $6.70. This short-call strategy frequently appears when traders believe that shares have limited upside.

The chip maker's last financial report on Aug. 4 saw earnings and revenue beat forecasts, but sentiment has been negative in the entire sector amid concerns about PC demand. That worry was validated when semiconductor giant Intel issued bearish guidance on Aug. 27.

Overall options volume in ONNN is 4 times greater than average so far today.

(Chart courtesy of tradeMONSTER)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: INTC , ONNN

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