What’s Up With Silicon Labs & RF Micro Devices?

Stock and option volume for Silicon Labs (SLAB) and RF Micro Devices (RFMD) spiked yesterday and their stock prices were also down -4% and 14%, respectively.

Silicon Labs designs and develops integrated circuits, primarily in the analog and mixed signal space. SLAB has products in RF (Radio Frequency), video, satellite set-top box and modems. Silicon Labs products have a range of applications from radios and video recorders to telephone and networking equipment.

RF Micro Devices designs and manufactures RF components and semiconductors. RFMD’s products include: amplifiers, receivers, transmitters, modulators, demodulators, attenuators, synthesizers and oscillators. The applications for its products range from cellular handsets to cable TV.

So what’s up with these companies and why is their stock and option volume spiking? One analyst, Tore Svanberg from Thomas Weisel Partners, thinks it is a result of an inventory reduction by Samsung. Samsung is a customer for both SLAB and RFMD and if Samsung isn’t buying components, then SLAB’s and RFMD’s income may be negatively affected.

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Yet the option volume indicates somebody thinks this correction may be temporary as the volume for October and November call options slightly out-of-the-money for both companies were heavily traded yesterday.

SLAB’s stock price has been phenomenal over the last year with an increase of 50% and increasing over 200% since is low in December of 2008. RFMD’s stock price has also been skyrocketing over the last year with a yearly return of 50% and a return of over 400% since is low in December of 2008.

Both SLAB and RFMD have attractive covered call investing positions available for October & November expiration. However, RFMD’s stock price is below $5 and it can be more difficult to roll covered calls positions for stocks with a lower price, as the stock price would have to increase 50% or to $7.50, the next higher call option strike, in order to make a roll worthwhile. But SLAB’s stock price is in the $45 range and would only have to increase 11% in order to roll to the next higher call option with a strike price of $50. Of course a covered call investing position for RFMD would enable an investor to enter a covered call position with less capital, but we’ll stick with the SLAB position.

The November covered calls for SLAB appear to have a more attractive return than the October covered calls. The October covered call investing position has a %if unchanged potential return of 2% and the November position has a %if unchanged potential return of 5.4%. Based on this the November position appears more lucrative, even though it may require more time to realize a profit. The SLAB call option to sell for the November position would be the one with a $45 strike price or ticker symbol QFJKI.

To enter the covered call investing position option investors would purchase the stocks in multiples of 100 shares and sell one call option for each 100 shares of stock purchased.

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[tags] Radio Frequency, video, satellite, modem, radios, video recorders, telephone, networking equipment, amplifiers, receivers, transmitters, modulators, demodulators, attenuators, synthesizers, oscillators, cellular handsets, cable TV, Tore Svanberg, Thomas Weisel Partners, inventory, Samsung, RFMD, RF Micro Devices Inc., SLAB, Silicon Labs [/tags]