Options traders have taken a shine to InterDigital, Inc. (IDCC) today, with short-term speculators employing both calls and puts to bet on limited upside for the shares. At last check, the security has seen around 6,500 calls and 7,300 puts change hands, compared to its average intraday volume of about 700 calls and 300 puts.
On one hand, the more traditional option bears have honed in on the August 30 put, which has seen more than 1,900 contracts traded on open interest of fewer than 250, indicating newly initiated positions. Plus, 86% of the front-month puts have crossed at the ask price, suggesting they were purchased. By buying the puts to open, the investors are expecting InterDigital to retreat back beneath the $30 level within the next few weeks.
Meanwhile, some skeptics are utilizing calls to gamble on InterDigital. Specifically, the security's out-of-the-money August 35 call has seen more than 1,000 contracts traded on open interest of just 70. However, the majority of the calls have changed hands at the bid price, hinting at seller-driven volume. By writing the calls to open, the sellers are hoping InterDigital finishes south of $35 when August-dated options expire. In this best-case scenario, the calls will remain out of the money, and the traders can retain the entire premium received at initiation.
Undoubtedly fueling today's unusually high volume, a US appeals court resuscitated the company's 2007 patent infringement complaint against Nokia (NOK). As such, the shares of InterDigital skyrocketed as high as $34.10, but have since trimmed their lead to 12.7%, and were last seen lingering in the $30.77 region.
There could be a few options traders ruing their bearish bets. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and Nasdaq OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.45 sits in the 97th annual percentile. In other words, option buyers have been scooping up puts over calls at a near annual-high clip during the past two weeks.
As a result, the stock's Schaeffer's put/call open interest ratio ("SOIR") of 0.58 registers in the 86th annual percentile, implying that short-term options traders are more put-skewed than usual at the moment. Prior to today, peak put open interest in the front-month series stood at the now out-of-the-money August 27.50 strike.
Elsewhere, short sellers could also be nervous. Despite depleting by 16.5% during the past month, short interest still accounts for 15% of InterDigital's total available float. In fact, at the equity's average pace of trading, it would take about 12 sessions to buy back all of these bearish bets -- suggesting InterDigital could benefit from a rush to cover.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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