Automotive chip manufacturer ON Semiconductor (ON) is down 22% over the past year, as investors have been more focused on other tech trends and EV sales have been lackluster. One trader sees further weakness in the weeks ahead.
That’s based on the November 15 $55 puts. With 52 days until expiration, 8,839 contracts traded compared to a prior open interest of 155, for a 57-fold rise in volume on the trade. The buyer of the puts paid $1.08 to make the bearish bet.
ON shares recently traded for about $70, so the stock would need to drop by $15, or 22%, for the option to move in-the-money. That’s an aggressive drop in the span of a few weeks, and would require shares to drop under their 52-week low of $59.34.
The company has struggled operationally in the past year thanks to lower demand. Earnings are down by 40%, and revenues are off by 17%. However, with interest rates coming down, auto demand may push higher over the coming months.
Action to take: Shares have largely been range-bound this year, and a drop into the lower $60 range is possible. Interested investors can likely get into shares under $65 in the coming weeks on any market weakness, and should look to gradually build a stake from that level.
For traders, the stock is near the higher end of its recent trading range, and combined with the seasonality of markets, a pullback is possible. That means the November 15 $55 puts could see mid-double-digit returns or better, although the option may not move in-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.