Heavy buying in EZchip shares, options after company withdraws from events

Reuters News
Posted: Aug 28, 2014 4:51 PM

By Saqib Iqbal Ahmed and Soham Chatterjee

NEW YORK/BANGALORE (Reuters) - Israel-based EZchip Semiconductor's shares rose 10 percent on Thursday and there was a spike in bullish options bets after the chipmaker canceled expected appearances at upcoming brokerage conferences, sparking talk of a possible deal for the company.

There is "no news but there has been recent speculation that EZCH could likely be an acquisition candidate," Jay Srivatsa of Chardan Capital Markets said.

EZchip's management canceled plans to attend two separate industry events hosted by Roth Capital and Brean Capital scheduled for Sept. 3, said Ehud Helft, investor relations representative for EZchip. Helft said the company's management would not be in town for those events but did not elaborate.

"If an M&A offer came up it would not surprise me that management may take that offer, given the fact that the market has been unwilling to recognize the value EZchip has created," said Feltl & Co analyst Jeffrey Schreiner, who has a strong buy rating and a $31 price target on the shares.

Shares of the stock are down 3.7 percent in the last year, compared with a 16 percent gain for the S&P Small Cap Index. Its forward 12-month price-to-earnings ratio lags its peers at 16.4 versus the 18.7 average for its competitors.

EZchip provides high-speed network processors for the ethernet switching and routing market and counts Cisco Systems among as its largest customers.

The stock rallied sharply on Thursday, with shares up $2.47 at $27.78 on Nasdaq in afternoon trade with 1.24 million shares traded, about 10 times the 50-day average volume of 122,000 shares. They touched a high of $28.50 earlier in the day.

Thursday's options volume of nearly 9,000 contracts is 20 times greater than normal, according to Fred Ruffy, options strategist at Whatstrading.com, with calls outnumbering puts by a 5.5-to-1 ratio.

A trader bought about 2,000 October $24 calls in EZchip at 10:35 a.m. EDT for $2.05, which coincided with the breakout in the stock. Steve Place, founder of options analytics firm investingwithoptions.com in Mobile, Alabama, said the trade was most likely in response to whatever news was coming out.

"What's interesting is that the bid was at $1.75 and the ask was $2.05, that's a 30 cent wide bid-ask spread and they bought the ask. That's an incredibly aggressive trade," Place said.

(Reporting by Saqib Iqbal Ahmed and Soham Chatterjee; Editing by Cynthia Osterman)