Bulls bet on bounce in Silicon Motion

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Silicon Motion Technology has been pulling back from a monster run, and the bulls are stepping in.

Our tracking systems detected the purchase of almost 5,000 February 20 calls against open interest of just 689 contracts. Most of them traded for $0.75 to $0.80.

These long calls lock in the price investors must pay to buy shares, so they can generate major leverage if the stock moves in the right direction. But the options can also lose all their value if a rally doesn't occur before they expire at the end of next week. (See our Education section)

SIMO rose 1.79 percent to $19.30 yesterday, down from an intraday high of $20.45. The provider of mobile chips more than doubled last year amid repeatedly strong earnings reports. It beat estimates again last week, prompting management to issue guidance above analysts' expectations.

The stock tried to rally but then rolled over as investors took profits, falling from about $24 to $19. Yesterday's option activity suggested that some buyers are now returning to the name.

More than 8,300 contracts traded in total, compared with the average of about 500 in a session. Overall calls at all strikes outnumbered puts by 10 to 1.

(A version of this post appeared on InsideOptions Pro yesterday.)




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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: SIMO

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