Will Apple Squeeze OmniVision Out of the iPhone Business?

Posted Apr 4th 2011 1:00PM by Brent Archer
Filed under: Major Movement, Bad News, Apple Inc (AAPL), Sony Corp ADR (SNE), iPhone, Options, Technical Analysis

OmniVision (OVTI - option chain) stock is trading sharply lower today after Sony (SNE) CEO Howard Stringer said late Friday that his company is supplying camera components to Apple (AAPL). This could pose a threat to OVTI's AAPL business, as OVTI had been the main supplier of image sensors for the iPhone. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on OVTI.

This morning, OVTI opened at $34.06. So far today the stock has hit a high of $34.10 and a low of $32.20. As of 12:15, OVTI is trading at $33.15, down $3.04 (-8.4%). The chart for OVTI looks neutral and S&P gives OVTI a neutral 3 STARS (out of 5) hold ranking.

For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in seven weeks as long as OVTI is below $40 at May expiration. OmniVision would have to rise by more than 21% before we would start to lose money. Learn more about this type of trade here.

OVTI hasn't ever been above $38 and has shown resistance around $37 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in OVTI or SNE. He does control bullish hedged positions in AAPL.

Tags: AAPL, Apple, inthenews, Investors Observer, iPhone, OmniVision, options, OVTI, SNE, Sony