Semiconductor company Analog Devices (ADI) have been a strong performer in the past year, with a 13 percent gain, amid overall losses for the sector. One trader is betting on a reversion taking shares down in the coming days.
That’s based on the March 31 $175 puts. With 9 days until expiration, 2,232 contracts traded compared to a prior open interest of 115, for a 19-fold rise in volume on the trade. The buyer of the puts paid $0.77.
Shares recently traded for about $187, so they would need to drop $12, or about 6.5 percent, for the option to move in-the-money. Given the market’s recent volatility, such a move is possible, although traders should likely expect a smaller move.
ADI has generally been moving higher over the past few months, but that trade has stalled out in recent weeks. On a technical basis, shares look like they could be set for a quick move lower.
Action to take: Investors should hold off on buying shares for now, as they can likely get a lower price in the coming weeks. The stock has a 52-week low of $133.48, but a move to the mid-$160 range would be reasonable enough to make a buy.
For traders, the March 31 puts could see high double-digit moves, but don’t have much time to play out. Those who make the trade should be prepared for a quick, and possibly small, profit.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.