SWKS, ADP Options – Unusual Trading Activity – February 22, 2013

| February 22, 2013 | 0 Comments

Unusual Trading VolumeThis week we’re taking a look at unusual options trading activity in Skyworks Solutions (SWKS) and Automatic Data Processing (ADP).

As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week:

Skyworks Solutions Options (SWKS)

An unusual amount of option activity was detected in SWKS yesterday.  More than 20,000 call and put options traded hands compared to average daily volume of around 3,500 contracts.

SWKS is currently trading for $21.75 per share.  The stock is down 30% from the 52-week high of $31.44 and nearing the 52-week low of $19.21.

Yesterday, option traders positioned themselves to profit from further declines in the semiconductor company.  Traders poured into the SWKS March 2013 $22 puts for $1.22 and the SWKS March 2013 $21 puts for $0.71 as the stock slid more than 13%.

The traders will profit at expiration if SWKS falls below $20.78 for $22 strike puts and $20.29 for the $21 strike puts.

What’s behind the bearish action?

Mobile chip computing juggernaut Qualcomm (QCOM) announced a new product that will compete directly with SWKS.  This is a big blow to SWKS and other wireless chip companies.

QCOM already dominates the wireless baseband segment of chips used in wireless.  And they’ll likely do the same to the RF portion now that they have a product.

In other words, QCOM is going to come into this market and steal market share from SWKS and everyone else.  That severely limits the growth prospects for SWKS.

And without growth… SWKS is likely heading lower.

However, it’s important to note that SWKS has strong support zone around $20.  This level has been like a floor under the stock price for months.  There are clearly buyers willing to step in and buy the stock whenever it falls to this level.

So I’m not in too much of a hurry to jump on this trade… We’ll see how this one plays out quickly… these options expire in just three weeks.

Automatic Data Processing Options (ADP)

Our tracking system detected bullish options activity in ADP yesterday.  Total option volume was nearly 5X more than average.  And the vast majority (around 80%) was bullish call buying activity.

ADP is currently trading for $60.82.  But yesterday the stock was trading as low as $60.07.  Before the pullback, the shares had been pushing 52-week highs and are up more than 22% from the 52-week low of $49.79.

Around 3,200 of the ADP April 2013 $62.50 calls were purchased from $0.35.  The owner of the calls shelled out $112,000 to open the position.  They stand to profit if ADP is above $62.85 when the options expire in April.

However, if the stock is below $62.50 at options expiration, the trader will lose their entire $112,000 investment.

Honestly, I don’t like this trade.  ADP has been steadily moving higher for years.  And it does it in a fairly predictable pattern.

Right now, ADP is near resistance of the upward trending price channel.  In my opinion, ADP is more likely to fall back to support of the price channel before moving higher again.

What’s more, now that ADP has already had a nice run since the trader established this position, I’d be leery of following the lead of this unusual activity.

More Options Ideas…

That wraps up this week’s unusual options trading and volume…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.