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Drop in ARM brings back call buyers

Mike Yamamoto (mike.yamamoto@optionmonster.com)

ARM Holdings has pulled back sharply after a massive run, but bullish option traders came back to the U.K. chip maker last week.

More than 4,000 July 35 calls traded in a strong buying pattern on Friday for premiums ranging from $1.78 and $2.10, according to optionMONSTER Heat Seeker tracking system. These are clearly new positions, as the open interest in the strike was just 47 contracts before the session began.

These long calls , which lock in the price where traders can buy the stock, are betting that ARMH will gain roughly 6 percent in the next month. But they will rapidly lose value if the shares don't rally in coming weeks. (See our Education section)

ARMH dropped 4.17 percent on Friday to finish the session at $35.17, continuing to decline from all-time highs reached last month. On Wednesday the stock closed below its 200-day moving average for the first since early September 2012. At that time the shares bounced off that level around $25 and then climbed all the way to $50.56 on May 16.  

Total option volume in the name was 11,649 contracts, compared with a daily average of 6,814 in the last month. Calls outpaced puts by about 1.7 to 1.

(A version of this post appeared on InsideOptions Pro on Friday.)

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