IB Options Brief: Silicon Image, Inc. (SIMG) & NXP Semiconductors NV (NXPI)
SIMG ñ Silicon Image, Inc.
Shares in the provider of semiconductor products to equipment manufacturers in the consumer electronics, personal computer, mobile and storage markets jumped 19.7% this morning to an intraday high of $9.05 after the chip maker forecast greater-than-anticipated second-quarter sales of $51 million. Silicon Image reported first-quarter results after the closing bell on Tuesday, and was raised to ëBuyí from ëHoldí at Needham & Co. with a 12-month share price target of $11.00.
Options traders who purchased calls in the front month yesterday are today holding far more valuable contracts. It looks like investors picked up around 1,230 calls at the May $7.5 strike on Tuesday for an average premium of $0.57 apiece ahead of the earnings report. The spike in the price of SIMGís shares sent premium on the contracts sharply higher.
Investors buying the same May $7.5 strike calls today paid an average premium of $1.39 apiece. Traders purchased roughly 530 calls today, while 675 call options traded to the middle of the market at that strike. The value of the call options purchased by traders acting ahead of the earnings announcement more than doubled overnight. Options implied volatility on Silicon Image dropped 24% by 11:35am in New York to stand at 57.29% post-earnings.
NXPI ñ NXP Semiconductors NV
Substantial volume in October contract call and put options on chip maker NXP Semiconductors NV indicates one trader sees the price of the underlying stock remaining range-bound through expiration. Earlier in the month, NXP Semiconductors was rumored to be in takeover talks with Intel, Qualcomm and Broadcom, but the companyís Chief Executive quickly dispelled speculation and said NXP was not for sale. NXPI shares are currently down 3.3% to trade at $33.05 as of 1:10pm.
The stock, which has 16,489 contracts in open interest, appeared on our ëhot by options volumeí market scanner after more than 10,000 options changed hands in the October contract. It looks like one investor initiated a short strangle, selling around 5,000 calls at the October $37.5 strike at a premium of $2.85 each, and selling roughly 5,000 puts at the lower October $30 strike at a premium of $3.13 apiece.
Gross premium pocketed on the transaction amounts to $5.98 per contract. The trader keeps the entire amount of premium as long as shares in the chip manufacturer trade within the boundaries of the strike prices described through expiration day. The investor may benefit from subsiding levels of implied volatility as well as erosion in the extrinsic value of the contracts over time. NXP Semiconductors is scheduled to report first-quarter earnings before the market opens on May 4, 2011.
The $5.98 in premium provides limited protection from losses should shares swing sharply in either direction, but losses start to amass if the stock fall beneath the lower breakeven price of $24.02, or given a strong rally above the upper breakeven point at $43.48, by expiration day. NXPI shares have never traded anywhere near $43.48, but did trade under $24.02 at the end of January 2011.
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