Large Option Trader Has High Hopes For Cirrus Earnings

Tech stocks have been hot again in 2019, and Cirrus Logic, Inc. CRUS has been along for the ride. Cirrus shares are up 45% year to date, but at least one option trader is betting there is even more upside ahead.

The Trade

On Thursday morning, Benzinga Pro subscribers received an option alert related to an unusually large Cirrus trade.

At 9:46 a.m., a trader bought 1,407 Cirrus call options with a $49.50 strike price expiring on Aug. 2 at the ask price of $1.20. The trade represented an $168,840 bullish bet that Cirrus will be trading at or above $50.70 by the end of next week. That break-even price represents 5% near-term upside for the stock.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of the Cirrus option trade by institutional standards, it is unlikely to be a professional hedge.

Earnings Upside?

Assuming Thursday’s trading action did not represent hedging, the trader seems convinced Cirrus will impress the market with its earnings report due out July 31. The trader may also be expecting bullish commentary on the new family of Apple Inc AAPL iPhones due out in September. Cirrus is a major supplier of audio chips for Apple.

Cirrus stock has performed well this year despite reporting large declines in EPS and revenue in its fiscal fourth quarter. Investors also may appreciate that Cirrus is diversifying away from relying almost exclusively on Apple for its business. Apple’s percentage of total Cirrus revenue dropped from 82% in the fiscal third quarter to just 66% last quarter. Android now accounts for 15% of Cirrus revenue.

While Cirrus investors eagerly await iPhone numbers in the second half of the year, Cirrus is also expected to launch several new products of its own in the next 18 months as it expands beyond smartphones and into smart audio accessories and other devices.

Thursday’s call buyer may also anticipate some positive news on the earnings call related to these new products. Whatever the reason, the large size of the order means an option trader with very deep pockets is making a large bet that earnings will trigger the next leg up for Cirrus stock.

Cirrus traded around $48.17 per share at time of publication.

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