Put/Call Ratio Points to Bearish Sentiment in RF Micro Devices (RFMD)

10/12/2010 12:01 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

The shares of RF Micro Devices Inc. (RFMD) dropped Monday morning as the stock was downgraded from "buy" to "hold" at Needham Research. There is still ample room for other analysts to follow in Needham's footsteps, as the stock has earned 13 "buy" ratings, four "holds," and just two "strong sells," according to Zacks.

Meanwhile, the average 12-month price target for RFMD comes in at $7.29, according to Thomson Reuters. This estimate implies that analysts are expecting the shares to rally more than 13% during the next year from Friday's closing price of $6.45.

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Elsewhere, we find that sentiment toward the shares is relatively bearish. The International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) report that the stock's ten-day put/call volume ratio of 0.13 is higher than 72% of all those taken during the past year, pointing to a growing skepticism.

Furthermore, the Schaeffer's put/call open interest ratio (SOIR) for RFMD comes in at 0.32, which is higher than 91% of all those taken during the past 12 months. In other words, short-term options players have been more pessimistically aligned toward the shares only 9% of the time during the previous year.

Short sellers have been adding to their bearish bets lately. During the past month, the number of RFMD shares sold short increased by 6% to 17.2 million. This accumulation of pessimistic positions accounts for 6.6% of the company's total float.

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Technically speaking, the shares of RFMD are up more than 35% since the beginning of the year. The stock has staged an impressive rally along the support of its ten- and 20-day moving averages since early July as the equity has bounced off support in the $3.70 area.

By Jocelynn Drake, contributor, Schaeffer’s Trading Floor Blog

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