Sigma Designs has been unable to rebound from a late-2009
selloff, and one investor is selling calls to manage risk.
optionMONSTER's tracking systems detected heavy activity in the
July 10 contracts, which traded more than 5,200 times for $1.40 to
$1.70. Sales dominated the activity and volume was 17 times greater
than open interest in the strike.
The media chip systems company fell 5.77 percent to $10.78
yesterday and is down 11 percent in the last month. SIGM has been
consolidating below its 200-day moving average all year and failed
to mount a rally after its last earnings report on March 3, even
though profit and revenue crushed analysts' forecasts.
The next release is scheduled for after the bell on May 26.
The calls were probably sold by a shareholder looking to establish
an exit price of $11.40 to $11.70 on the shares. The transaction
allowed the investor to earn premium from the stock's 52 percent
implied volatility level, which is up from 43 percent a month ago.
The additional income will also protect the position even if SIGM
falls below $9, which makes it easier to hold the shares through
July expiration. The strategy is an example of how an investor can
use options to manage a position that he or she may like
fundamentally but believes isn't yet ready to rally.
The call selling pushed total volume in SIGM to 10 times greater
(Chart courtesy of tradeMONSTER)