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Bullishness in Novellus and KLA-Tenor on the heals of good news out of China.
Jud Pyle is the Chief Investment Strategist for Options News Network. After four years with SBC Warburg, he joined PEAK6 Investments as an equity options trader and chief risk officer. Analyst upgrades across semi-conductors could have bolstered Novellus Systems (NVLS) and KLA-Tencor (KLAC) stock yesterday, and some investors ran with the bulls to boost call volume in the names.
An investor bought 5,000 KLAC July 26 calls for around 90 cents per contract with the stock trading around $26.11 a share during the first two hours of trading Wednesday. These calls changed hands more than 6,000 times yesterday and were home to open interest of 1,181 contracts. The July 26 calls rallied 30 cents on the day. These calls closed yesterday with an implied volatility of 44 versus a 63-day realized volatility of 52.
We also saw heavy call volume in NVLS, in which an investor bought 9,500 July 17.5 calls for around 65 cents with the stock at $17.28 a share. The NVLS July 17.5 calls changed hands more than 11,100 times yesterday, and gained 38 cents on the day. These calls were home to open interest of 2,200 contracts. These calls closed yesterday with an implied volatility of 55 versus a 63-day realized volatility of 46.
The investors in KLAC and NVLS could be bullish thanks to good news out of China in terms of rising demand in personal computers and flat panel display technology. In addition, analysts upgraded dynamic random access memory maker Elpida to “buy” yesterday based on increased demand for faster chips, bolstering optimism in the semi-conductor industry. Finally, the price of LCD panels increased during the second quarter following a significant decline due to technology manufacturers increasing supply to meet demand in China.
Both semi-conductor stocks have rallied nearly 70% since mid-November (KLAC shares dipped to a 52-week low of $15.19 and NVLS shares reached a 52-week low of $10.46). NVLS shares closed up 74 cents to $17.44, and KLAC shares closed up 56 cents to $25.81 yesterday.
Bullish investors in NVLS need the stock to expire higher than $18.15 a share, and those investors bulled up on KLAC need the stock to expire higher than $17.88 in the next few weeks.
Bullish options activity does not automatically mean investors should go long semi-conductor stocks like NVLS and KLAC, but it is interesting that we saw at least one investor buy good news on the industry on a potential bet that these names have even more rally room.
Meet Jud Pyle live in Las Vegas at the Forex & Options Expo. Click here to find out more.